27 Apr Capitalization Table (Cap Table)

Capitalization Table (Cap Table)

A capitalization table (cap table) is the record of the equity holders in a company. A capitalization table tracks the name of equity holders and the amount and type of equity held. Capitalization tables can also contain information such as contributed capital, notice addresses, conversion ratios and records related to non-equity securities such as warrants and options. The capitalization table can be useful in determining the required notices to be made and votes to be taken at an equity holders’ meeting. The capitalization table can also play a key role in planning investment. Founders will want to reference the capitalization table to understand their stake in the company and the potential impact of additional investors on their share of the equity. A “fully diluted” and “as converted” capitalization table will set forth the total equity of the company assuming all non-equity securities such as warrants and options are fully exercised and all preferred stock is converted into shares of common stock. The fully diluted capitalization table can be useful in determining the status of the company’s equity in the case of a company liquidity event such as a merger or acquisition. For a startup company, managing a capitalization table can be accomplished through a relatively straightforward spreadsheet, with basic information about the capitalization of the company. As the company matures and the capitalization table increases in complexity, a company may want to rely on lawyers or specific software designed to simplify capitalization table management. Capitalization table management has been identified as an area of corporate law amenable to modernization through the use of a blockchain database. The capitalization table is a crucially important document for a company, as it is typically the single document relied on to determine the equity holders of a company and their relative rights and obligations.