What is a Cap Table? A Startup Equity Basics FAQ

What is a Cap Table?

A cap table, short for capitalization table, is a document that outlines the ownership structure of a company. It lists all the shareholders, their respective ownership percentages, and the number of shares each holds. Think of it as a snapshot of your company's equity at a particular point in time.

Why is a cap table important? It helps you keep track of who owns what, and it's essential for making informed decisions about your company's future. In this FAQ, we'll cover the basics of cap tables and startup equity.

What are the different types of equity?

There are several types of equity, including:

• Common stock: This is the most common type of equity and represents ownership in the company.
• Preferred stock: This type of equity has a higher claim on assets and earnings than common stock.
• Options: These give the holder the right to buy a certain number of shares at a specified price.
• Warrants: These are similar to options but are typically issued to investors or employees.

What is a stock option?

A stock option is a contract that gives the holder the right, but not the obligation, to buy a certain number of shares at a specified price. Options are often used as a form of compensation for employees or as a way to incentivize investors.

What is a warrant?

A warrant is a type of security that gives the holder the right to buy a certain number of shares at a specified price. Warrants are often used as a way to raise capital or as a form of compensation for investors or employees.

How do I create a cap table?

Creating a cap table is a straightforward process. You'll need to gather the following information:

• Shareholder information: This includes the name, address, and number of shares held by each shareholder.
• Share class information: This includes the type of shares, the number of shares, and the ownership percentage.
• Option and warrant information: This includes the number of options or warrants issued, the exercise price, and the expiration date.

Once you have this information, you can create a cap table using a spreadsheet or a cap table software.

Why is it important to keep my cap table up to date?

It's essential to keep your cap table up to date for several reasons:

• Accuracy: An accurate cap table helps you keep track of who owns what and ensures that your financial records are accurate.
• Compliance: Failing to maintain an accurate cap table can lead to compliance issues and potential legal problems.
• Decision-making: An up-to-date cap table helps you make informed decisions about your company's future.

Can I use a cap table software to manage my cap table?

Yes, you can use a cap table software to manage your cap table. These software solutions can help you track changes to your cap table, generate reports, and ensure compliance with regulatory requirements.

What are the benefits of using a cap table software?

Using a cap table software can provide several benefits, including:

• Accuracy: Cap table software can help you ensure that your cap table is accurate and up to date.
• Efficiency: Cap table software can streamline the process of managing your cap table, saving you time and effort.
• Compliance: Cap table software can help you ensure compliance with regulatory requirements.

Post-Summary:

This FAQ covers the basics of cap tables and startup equity, including the different types of equity, how to create a cap table, and the importance of keeping it up to date. We also discuss the benefits of using a cap table software to manage your cap table.