Cap tables for UK founders: what to get right from day one

A capitalisation table (a cap table) is the record of who owns what in a company, in what form, and on what terms. For UK founders it is the single most important operational document after the shareholders' agreement, because every future decision (raising, hiring, selling) is priced from it.

The mistakes founders make on cap tables are more likely to be structural rather than mathematical. Equity distributions structures sit within legal documents and don't always easily translate into spreadsheets. We see this often where a company has issued multiple rounds of convertible instruments: the dilution can be more than expected. 

What belongs on a UK cap table?

At incorporation, the cap table is simple: ordinary shares held by the founders, ideally with reverse-vesting so early departures do not leave dead equity on the register. Companies House will show the share allotments and your cap table should mirror that plus the vesting schedules.

As the company grows, the cap table expands to include: EMI (or unapproved) share options and their exercise status; ordinary shares issued to investors; any Advance Subscription Agreements (ASAs) or Convertible Loan Notes (CLNs) that have not yet converted; preference shares from priced rounds; and warrants.

Fully-diluted vs issued

The two views that matter are the issued cap table (what is actually on the register today) and the fully-diluted cap table (what the register would look like if every option was exercised and every convertible converted). Investors negotiate off fully-diluted numbers.

The option pool

Most UK tech companies operate an EMI option scheme. The pool needs to be authorised in the articles, approved by shareholders, and reflected on the cap table on a fully-diluted basis. A common debate is a pre or post-money option pool increase, effectively whether the dilution comes out of the existing shareholders (i.e. the founders), or the incoming investors. A compromise can be to split the option pool allocation between pre and post-investment up to the agreed percentage. 

Many founders end up with excess option pool prior to a subsequent fundraise which means fewer shares are needed to be issued to create a strong incentive pool. But it does mean the Founders or investors have taken on more dilution than needed earlier on. Getting the right numbers for an option pool is a balancing act.  

Getting help

Hythe Legal advises UK founders on cap table structure, funding rounds, and the corporate documentation that sits behind them. If you are setting up your company or preparing to raise, get in touch.