Cap table definition

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What is a Cap Table?

A cap table is a spreadsheet that itemizes the ownership positions of the investors in a business. If a business has issued several types of equity, then the cap table is subdivided into stock types. This means that, for example, an investor might have acquired shares of common stock, Series A preferred stock, and Series B preferred stock. A cap table may be sorted in descending alphabetical order by the names of the investors. However, a useful alternative approach is to sort the table by ownership percentage, so that the largest investors appear at the top of the table; this is a useful approach for quickly determining who has a controlling interest in a business.

When to Update a Cap Table

This spreadsheet may be updated regularly when a business is first starting up, since this is when it is most actively obtaining funding from investors. A cap table will also need to be updated when warrants or stock options are exercised, additional shares are sold, or when other firms are acquired with company stock. There may also be cases in which stock will be purchased back from investors (known as treasury stock), which will trigger a reduction in the number of shares listed on the cap table.

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How is a Cap Table Used?

There are several areas in which a cap table can be used, which are as follows:

  • Ownership listing. The most obvious cap table use is to determine the ownership interests of investors, along with the ownership percentage of each one. This is useful for determining the distribution of ownership, and who has voting control.

  • Dividend calculations. A cap table can be used to determine the amount of dividends owed to each investor.

  • Sale distributions. If the business is sold, then a cap table can be used to determine the payout to be made to each investor.

  • Dilution tracking. A cap table can be used to model the impact on ownership positions if the company were to sell additional shares to the investment community.

  • S corporation distributions. A cap table is needed when profits are distributed straight through to investors (as is the case with an S corporation), so that the correct profit allocations can be made to the investors.

In short, a cap table is quite useful for understanding the equity structure of a business, and especially when the organization is dealing with stock sales or dividend distributions.