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LEGAL GLOSSARY · STARTUP & FOUNDERSWhat Is a Cap Table?
The single ledger of who owns your company — what it tracks, why investors read it first, and the errors that surface in diligence.
Gyanendra Singh·Advocate·High Court of Madhya Pradesh, Jabalpur
What Does Cap Table Mean?
The capitalisation table — cap table — is the running ledger of a company's ownership: every shareholder, every option holder, every convertible instrument, with their share counts and percentage stakes on a fully diluted basis. It answers the only question that matters in ownership conversations: if everything converted and everyone exercised today, who would own how much?
No statute prescribes its format — spreadsheets and platforms both work — but its contents must reconcile perfectly with statutory registers and filings.
What a Complete Cap Table Tracks
- Founders' shareholdings, including any reverse-vesting constraints.
- Each funding round's instrument class — equity, compulsorily convertible preference shares — with rights attached.
- The ESOP pool: granted options, vested versus unvested split, and unallocated reserve.
- Convertible notes and SAFEs shown as-converted using their caps and discounts.
- Dates, prices per share, and total consideration for each issuance — the diligence backbone.
Why It Matters at Every Stage
- Fundraising: investors model their stake, dilution and exit returns directly from it — inconsistencies stall term sheets.
- Hiring: offer letters quote option percentages that must match reality on the day of grant.
- Exits: waterfall analysis — who gets paid what order — runs entirely off this table.
- Governance: voting thresholds in agreements reference these numbers; stale tables produce invalid consents.
The Errors Diligence Always Finds
- Handshake equity promises never documented through allotment — obligations without shares or shares without paperwork.
- Options granted exceeding the board-approved pool, or grants made without formal approval trails.
- Founder shares sitting with relatives or nominees while founders operate informally — ownership fiction unravelling under scrutiny.
- Convertible instruments omitted from fully-diluted views, making dilution models fiction.
- Departed employees holding large unvested positions nobody tracked to lapse.
Cap Tables: Common Questions
1. What does 'fully diluted' actually mean?
Counting every share that could exist today: issued shares plus all vested and unvested options plus convertibles as-converted. Percentages quoted on any other basis flatter whoever quotes them.
2. Is the cap table itself a legal document?
The table is an internal record; legal truth lives in statutory registers, board resolutions and filings. They must reconcile — where they diverge, registers govern, and fixing the mismatch becomes the project.
3. Where do convertible instruments appear before they convert?
In a separate schedule modelled as-converted at current caps and discounts, so everyone sees tomorrow's ownership today. Excluding them makes pre-round dilution math systematically wrong.
4. Who should maintain it?
One accountable owner — founder, CFO or counsel — with version history. Committee-maintained tables are how double-counted option grants happen.
5. What do investors test first against the table?
Founder commitments (vesting status), pool adequacy for hiring plans, and whether prior-round promises — pro-rata rights, advisory grants — are recorded or lurking as surprises.
6. Can cap-table errors kill a deal?
Individually rarely; cumulatively yes — a pattern of informal equity handling signals deeper governance gaps and reprices trust. Clean tables are cheap; reconstructed ones are not.
Unsure What Your Table Really Says?
Reconciliation against registers takes days now or weeks mid-deal. Get the audit done before someone else does.
Contact Gyanendra Singh →Disclaimer: This explanation covers cap tables in general terms and is not legal advice. Maintenance requirements vary by structure; consult a qualified advocate about your situation.