A capitalization table, or cap table for short, is a snapshot of who holds what securities of a company at a given time. Cap tables are important records that can inform major company decisions, so it is imperative that a company keep its cap table accurate and up to date.
What information is in a cap table?
A typical, relatively detailed cap table will have an investor-by-investor breakdown of the number of securities held, the percentage of economic ownership of the company (by class or series of security, if relevant), and the percentage of voting control over the company (by class or series of security, if relevant, and if different than economic ownership).
The level of detail provided in any given cap table can vary depending on capitalization information that the intended viewers require, as well as information that a company is willing to share. The image below shows a capitalization table example:
What is a pro forma capitalization table?
A pro forma cap table is a projection — typically in spreadsheet form — of a company's ownership structure at present, and after an investment round or acquisition. It is generally created for startups and shows the distribution of equity ownership and voting rights among shareholders, assuming the proposed event takes place. Investors and management use pro forma cap tables when making major investment decisions.
How are cap tables used?
Companies use cap tables to determine how much equity to award to employees, how much equity to sell to investors, and which investors are needed to approve certain major company actions, among other equity- and governance-related issues. Investors use cap tables to determine what economic ownership and voting control they have in a company on an absolute basis and relative to other investors.
In the fundraising context, both companies and investors use models based on cap tables (known as pro forma cap tables) to forecast changes to the company’s economic ownership and voting control as the result of new investments. In mergers and acquisitions, buyers and sellers typically build complex spreadsheets, using cap tables as a starting point, to calculate how much and to whom the proceeds of a transaction will flow.
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Disclaimer: LTSE is neither a law firm nor provides legal advice. Before making decisions on matters covered by this post, readers should consult their legal adviser.