How UK cap tables work and why keeping one clean matters
A cap table is the master record of who owns what percentage of a company, and because every funding round and eventual exit is priced against it, an inaccurate or out-of-date one can cost a founder real money and real time to fix.
A capitalisation table, or cap table, is the structured record of who owns what percentage of a company: every founder, every employee with share options, and every investor across every funding round, along with the class of shares or type of instrument each holds. It sounds like a simple spreadsheet, and at the earliest stage often is one, but because every future funding round, every option grant and eventually any exit is priced and negotiated directly against it, an inaccurate or poorly maintained cap table causes problems that compound the longer they go unnoticed.
What does a cap table actually need to include?
A complete cap table records each shareholder, how many shares they hold, what class those shares are (ordinary shares and preferred shares typically carry different rights), and what percentage of the company that represents, on both an issued and a fully diluted basis. “Fully diluted” is the more important of the two figures in practice: it means the calculation assumes every option in an unexercised option pool has been exercised and every convertible instrument, such as a convertible loan note or advance subscription agreement, has converted into shares, giving a realistic picture of what everyone would actually own if every right to future shares were exercised today. Investors think in fully diluted terms almost exclusively, since a percentage ownership offer that ignores an unallocated option pool or an outstanding convertible materially overstates what an investor, or a founder, will actually end up holding once everything converts.
Why does the option pool matter so much to the numbers?
Most UK startups reserve somewhere in the region of 10-15% of their fully diluted equity as an option pool for current and future employees, and investors typically expect this pool to already exist, or to be created, as part of a funding round, sized to cover option grants through to the next round. Because a pool created as part of a round is usually carved out of existing shareholders’ stakes, largely the founders’, before the new investor’s money arrives, an unallocated or under-sized option pool is one of the most common places a cap table’s “headline” ownership percentages diverge from what founders actually experience once dilution is accounted for. It is worth tracking not just how large the pool is but how much of it has actually been granted versus how much remains unallocated, since unallocated pool space still counts against founders in a fully diluted calculation even though no one holds it yet.
What other instruments does a cap table need to track?
Beyond straightforward share ownership, a cap table needs to track anything that could turn into shares in future: unexercised share options (including their vesting schedule and exercise price, which matters for schemes such as EMI where the exercise price and grant value affect the scheme’s tax treatment), convertible loan notes and advance subscription agreements with their conversion terms, and any warrants issued, for example to a lender as part of a venture debt facility. Each of these needs its own conversion logic modelled correctly, since a convertible instrument with a valuation cap and a discount converts differently depending on the price of the round it converts into, and getting this wrong can mean a cap table shows a materially different ownership picture from what actually happens once a round closes.
How does a cap table relate to a company’s statutory records?
In the UK, a company’s statutory register of members, the legal record of who holds shares, is a mandatory requirement under the Companies Act, separate from and not the same document as a working cap table, though the two need to reconcile with each other. Every change to a company’s share capital, a new allotment, a transfer, an option exercise, needs to be reflected both in the statutory records (updating the register of members and, where required, filing at Companies House, for example through a confirmation statement or a return of allotment) and in the working cap table used for modelling and investor discussions. It is common, especially in companies still tracking equity on a spreadsheet, for these two records to drift apart over time as changes get made in one place and forgotten in the other, and reconciling a cap table against Companies House filings and the statutory register periodically is one of the more valuable, if unglamorous, housekeeping tasks a founder or company secretary can do.
What goes wrong when a cap table is inaccurate or out of date?
The most common consequence is a funding round taking longer, and costing more in legal fees, than it should, because an investor’s due diligence process turns up discrepancies between the cap table a company has been showing prospective investors and its actual statutory records, requiring time to identify and correct before the round can close. Less commonly, but more seriously, an inaccurate cap table can mean a company has inadvertently issued shares, or granted options, that breach a scheme’s qualifying conditions, such as an EMI grant that pushes an individual employee over the scheme’s per-person limit, which can have real tax consequences for the employee and the company that are considerably harder to unwind after the fact than they would have been to prevent at the time.
What does keeping a cap table clean actually involve in practice?
It is worth updating the cap table at the point any change happens, a new option grant, an investment closing, a share transfer, rather than in a periodic batch, since changes are far easier to record accurately when the underlying paperwork, board minutes and resolutions are still fresh. It is also worth modelling the fully diluted impact of a prospective round before agreeing terms, since the combined effect of a new investor’s shares, an option pool top-up and any convertible instruments converting can dilute founders considerably more than the headline investment amount and valuation alone suggest. Many growing companies move from a spreadsheet to dedicated cap table management software once the number of shareholders, option holders and instruments becomes hard to track reliably by hand, which also tends to make it easier to model “what if” scenarios ahead of a funding round.
The practical takeaway
A cap table is not just an administrative record, it is the document every future negotiation gets priced against, so treating it as a live, continuously maintained source of truth rather than an occasional spreadsheet update is worth the discipline. Because errors compound and become more expensive to fix the longer they sit unnoticed, and because some mistakes, such as breaching a share scheme’s qualifying limits, have real tax consequences, it is worth having a solicitor or company secretarial specialist check a cap table’s accuracy against the company’s statutory records at least once before any significant funding round, rather than assuming it is correct because no one has flagged a problem yet.