Capitalization Table: A Beginner’s Guide to It
Your final stop to understanding capitalization tables.
Undoubtedly, it is the era of startups and new businesses. If you’re one of the founders of your own startup, then you definitely need to know about everything that comes with having your own startup. For example, capitalization tables.
Does this term ring any bells? Well, if it does, you can find some really valuable information related to it here. If it doesn’t, we’ll help you out!
Definition of a Capitalization Table
Before we get into all the important details of the capitalization table or cap table, you need to understand what it stands for.
A capitalization table, also known as a cap table, is a spreadsheet or a chart that presents the ownership stakes in the startup/business.
In simpler terms, suppose you have recently started your own company and you have got a few investors that have their own share in the company. Well, a capitalization table is just a list of all the investors, with the percentage of ownership, they have.
Quite easy, right?
Moreover, you can also find additional information in the cap tables such as debt to equity conversions, stock issuances, transfers, sales, and many more.
Thus, a capitalization table, basically, displays information about your company’s founders, investors, key employees, and executives, having their share in the company.
Building a Capitalization Table
There are plenty of ways you can build a capitalization table. A simple way is to make it in an excel spreadsheet. However, let’s take a look at some of the other options below:
- Cap Table Template
There are plenty of available spreadsheet-based cap table templates online if you have just started out.
However, keep in mind that it may get difficult to handle the cap table yourself as the company expands and grows.
- Cap Table Software
In case you want to save your time and efforts, you can simply make the whole process automatic with the help of a cap table software.
Then, you need not worry even when your company expands.
- Equity Management Platforms
When you hire new employees and you may give a share of the company, as equity to them, then an equity management platform is also a good idea.
These platforms can help in keeping the cap tables fully updated and also send it to the stakeholders.
What Information Do You Add In a Cap Table?
When you make a capitalization table, you need to have certain information that goes into the cap table.
Every cap table has a specific arrangement and format. A basic one simply consists of the names of the investors on one side of the table.
On the other side, all the information about their ownership is written down. This includes – the type of securities, how many do they own, date of investment, and ownership percentage in the business.
Is a Cap Table Necessary for Startups?
Now that you know what a cap table stands for, the question arises if it is necessary to have one.
Many owners still don’t have their own cap table. Instead, just a rough idea of the company’s investors. However, if you want some additional benefits then a cap table is a must for your company.
- A cap table can help you know the ownership status of the company in a clear and concise way.
- It can also help you while making big finance-related decisions for the company.
- Cap tables can help in staying compliant with tax and other regulations. Thus, preventing any penalties or higher taxes.
- If you have just started out, you can hire resourceful employees and offer them equity, with the cap table, as proof. So, it also helps in hiring and building team spirit.
- Lastly, if you want an out and want to sell the company, the legal process can be made easier with cap tables.
This is all about what cap tables are, how you can build one, and why your company should care about them.
So, if you haven’t started with building and maintaining your company’s cap table, now is the time to start