2015-07-14 15:46:36EquityEnglishIt's important to be compliant and document all equity investments in your business. Here's a guide to using cap tables to record equity...https://quickbooks.intuit.com/r/us_qrc/uploads/2015/07/11-Using-Cap-Tables-to-Record-Investments1.pnghttps://quickbooks.intuit.com/r/equity/using-capitalization-tables-to-record-equity-investments-in-your-financial-records/Using Capitalization Tables to Record Equity Investments in Your Financial Records

Using Capitalization Tables to Record Equity Investments in Your Financial Records

1 min read

A capitalization table (cap table) is a record of all the shareholders of a company, along with their pro-rata ownership percentage. The goal of a cap table is to show a snapshot of the ownership structure of a company.

During equity fundraising, cap tables are used to display the hypothetical ownership of the company incorporating new investors. For early-stage startups, cap tables should be pretty straightforward, but as multiple investment rounds are carried out, getting an accurate snapshot of ownership can get complicated unless recorded properly.

Keeping updated records of their shareholder positions as transactions happen is critical. When it’s time to raise more capital, it’s clear to new investors who owns what and at what percentage.

When presenting a cap table during fundraising, the best practice is to display it on a “fully diluted basis,” which means that all options, warrants, convertible securities or instruments that could be used to acquire common stock are exercised, regardless of vesting provisions. Basically, assume the highest share count possible. Showing a cap table on a fully diluted basis is a transparent way to show potential ownership.

Cap tables usually include:

  • Shareholder name
  • Type of security
  • Number of shares
  • Percentage of ownership (fully diluted)

 

template-cta-capitalization-table.png

When considering equity financing, a cap table can be a very effective way for a business owner to illustrate the role of shareholders in the company.

Rate This Article

This article currently has 10 ratings with an average of 3.2 stars

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

Help Your Business Thrive

Get our newsletter

Thanks for signing up!

Check your inbox for a confirmation email.*

*Check your spam folder if you don’t see a confirmation email.

The Complete Guide to Equity Financing

Capitalization

Capitalization refers to the process of raising funds (capital) to operate a…

Read more

How Does the New Tax Reform Affect Small Business?

While there are plenty of partisan opinions regarding the Tax Cuts and…

Read more

The Real Estate Agent’s Guide to Easy Quarterly Taxes

The National Association of Realtors® (NAR) reported in 2016 that the average…

Read more