So, what is a cap table? A capitalization table is the definitive record of a company's ownership: who holds equity, how much, of which kind, and how they got it. For a brand-new company it fits on an index card. By the time you've raised a round, granted options, and had a co-founder leave, it's a document that decides who gets paid what when the company sells, and one that investors will read line by line before wiring money.
Most founders meet their cap table twice: at incorporation, when a lawyer produces it, and in a fundraise, when it's suddenly wrong. This lesson covers what the table records, the vocabulary that trips people up, and what a correct one looks like on day one.
What a cap table records
Every line of a cap table answers three questions:
- Who owns what. The holder's name and the number of shares (or options, or other securities) they hold. Counts, not just percentages. Percentages are derived, and as you'll see below, they depend on what you divide by.
- Of which class. Not all equity is the same instrument. Founders and employees typically hold common shares; investors typically hold preferred shares with extra rights; employees hold options that can become shares; early investors may hold SAFEs or convertible notes that will become shares later. Each class carries different rights, so the table must say which is which.
- Acquired how. The transaction behind the holding: an issuance at incorporation, a purchase in a priced round, a transfer from another holder, an option exercise, a SAFE conversion, each with a date and a price. This is the part spreadsheets drop first, and it's the part lawyers and acquirers ask for.
That third point is worth dwelling on. A cap table is not really a table. It's a ledger. The grid of names and percentages is the output: the running total of every issuance, transfer, repurchase, exercise, and conversion since incorporation. Two cap tables can show identical percentages today and mean very different things, because the histories differ. Keep the events; derive the table.
Authorized vs issued vs outstanding vs fully diluted
Four different share counts describe the same company, and confusing them is the single most common cap-table error. From largest to most immediate:
- Authorized: the maximum number of shares the company's charter permits it to issue. It's a ceiling, not a statement of ownership. Raising it requires amending the charter (board plus shareholder approval), which is why companies authorize far more than they issue on day one.
- Issued: shares the company has actually issued to holders over its life.
- Outstanding: issued shares currently held by shareholders. Issued and outstanding differ when the company has bought shares back (for example, repurchasing a departed founder's unvested stock): repurchased shares are no longer outstanding. Voting power and dividends attach to outstanding shares.
- Fully diluted: outstanding shares plus everything that could become shares: granted options (vested and unvested), warrants, and usually the unallocated option pool. Converting SAFEs and notes belong here too, though their share counts aren't fixed until conversion. Fully diluted is the honest denominator for "what do I really own?" because it assumes every claim on the company's equity is exercised.
Always ask: percentage of what? The same holding can be 50% of outstanding shares and 44% fully diluted. When a term sheet, an offer letter, or a co-founder quotes a percentage, make the denominator explicit: outstanding or fully diluted, and whether "fully diluted" includes the unallocated pool. Most disputes about "my percentage changed" are really disputes about which denominator was meant.
Worked example: one company, four counts
Meridian Ltd has 10,000,000 authorized shares. Over three years it issued 8,600,000: 8,000,000 to two founders and 600,000 to a departed third founder, whose unvested 600,000 shares the company later repurchased.
Issued: 8,600,000. Outstanding: 8,600,000 − 600,000 repurchased = 8,000,000.
Meridian has also granted 800,000 options to employees, holds 200,000 unallocated in its pool, and issued a warrant for 100,000 shares to a lender.
Fully diluted: 8,000,000 + 800,000 + 200,000 + 100,000 = 9,100,000.
Founder A holds 4,000,000 shares. That's 50.0% of outstanding, but 4,000,000 ÷ 9,100,000 = 44.0% fully diluted. Both numbers are true. Only one of them survives everyone exercising their options.
Par value: the number that isn't a price
Most charters assign each share a par value, a nominal floor like 0.0001 per share (UK companies call it nominal value). It is not the market price, not the strike price, and not an estimate of worth. It's a legal minimum: the company can't issue shares for less than par, and the charter must state it.
Par value matters in exactly three practical moments. First, at incorporation: founders actually pay it. Buy 4,000,000 shares at 0.0001 par and you owe the company 400, which is why founders genuinely purchase their stock rather than being handed it. Second, in some jurisdictions it feeds fees and taxes. Delaware's franchise tax, for instance, is calculated from authorized shares and par value, which is one reason lawyers set par tiny (0.0001 or 0.00001) rather than a round 1.00. Third, it defines the repurchase price when unvested founder shares are bought back, as covered in the vesting lesson.
Don't pick a high par value because it "looks more serious": at 1.00 par, founders owe real money for their stock and the franchise-tax math gets ugly. Keep par nominal; let the market set the price.
Why percentages alone mislead
Founders think in percentages; cap tables run on share counts. Percentages are a useful summary and a terrible source of truth, for three reasons.
The denominator moves. Every new issuance changes everyone's percentage without touching their share count. If you track only percentages, every round means recomputing every row, and any error compounds silently. Track counts; compute percentages on demand.
Percentage isn't payout. Share classes carry different rights (liquidation preferences pay preferred holders before common), so a 10% common holder behind a large preference stack can make less in a modest exit than a 5% preferred holder. Percentages say who owns what; classes and preferences say who gets what. (That's the next two lessons.)
A falling percentage can be good news. Dilution reduces your percentage while, in a decent round, increasing what it's worth.
Worked example: smaller slice, bigger pie
You own 40% of a company worth 5,000,000: your stake is worth 2,000,000.
The company raises 2,500,000 at a 7,500,000 pre-money valuation. New investors get 2,500,000 ÷ 10,000,000 = 25% of the post-money company, and your 40% is diluted to 40% × 75% = 30%.
Your stake after the round: 30% × 10,000,000 post-money = 3,000,000. Your percentage dropped by a quarter; your paper value rose by half. Judging that round by percentage alone would have you vetoing a good deal. The full mechanics are in the dilution math lesson.
The founding cap table, worked from zero
Here is the standard shape of a two-founder company on day one, with real numbers.
Worked example: two founders and a reserved pool
Incorporate with 10,000,000 authorized common shares at 0.0001 par. Then:
Founder A buys 4,250,000 shares for 425. Founder B buys 4,250,000 shares for 425. Both purchases are subject to 4-year reverse vesting with a 1-year cliff. Reserve, but do not issue, 1,500,000 shares (15%) as an option pool for future hires.
The counts: issued = outstanding = 8,500,000. Fully diluted (including the reserved pool) = 10,000,000.
Each founder owns 50% of outstanding shares and 42.5% fully diluted. Nothing is wrong with this table. The 7.5-point gap per founder is simply the pool they've already set aside for the team they haven't hired yet.
Three details make this table correct rather than merely plausible. The pool is reserved, not issued: those 1,500,000 shares don't exist as holdings until options are granted and exercised, which is why they appear in the fully diluted count but not in outstanding. The founder shares are vested over time, so a founder who leaves at month 10 keeps nothing and the table survives the departure. And the 1,500,000 shares of headroom between issued (8,500,000) and authorized (10,000,000) exist on purpose: issuing every authorized share on day one means amending the charter before you can grant a single option.
An equal split is a choice, not a rule. 60/40 and 55/45 founding tables are common where contributions differ. What is close to a rule: decide the split before incorporation, paper it, and vest it. The most expensive cap-table problems trace back to handshake splits and unvested founder stock.
What a live ledger means operationally
A cap table is only useful if it matches reality on the day someone reads it, and someone will read it at the worst possible time: a financing, an acquisition, a dispute. "Current" is an operational habit, not a document property. Concretely:
- One source of truth. The moment two versions of the table exist (the lawyer's, the founder's spreadsheet), one of them is wrong and nobody knows which.
- Record at signature, not at fundraise. Every grant, transfer, exercise, repurchase, SAFE, and note gets entered when it's signed, with the document attached. Reconstructing eighteen months of events from a Downloads folder during diligence is where deals lose weeks.
- Numbers move without new deals. Options vest monthly; a table that was correct in January is stale by February even if nothing was signed. Vested counts, pool utilization, and expiring exercise windows all drift on their own.
- Point-in-time answers. "Who owned what on the date of that board consent?" is a question you will be asked. A ledger with history can answer it; a percentages-only spreadsheet can't.
This is the operational case for keeping the cap table as a transaction ledger rather than a grid. It's also what Vquity is built around: every issuance, transfer, and repurchase is a ledger entry, vesting accrues on schedule, and snapshots capture the table at any point in time with a field-level diff between any two. Whatever tool you use, including a spreadsheet early on, hold it to those four habits.
That's the cap table: a ledger of who owns what, of which class, acquired how, read through the right denominator. Next, we open up "of which class": common versus preferred shares, and why investors pay ten times the founders' price for stock in the same company.