Do’s and Don’ts of a Cap Table

A capitalization table is more than just a spreadsheet. It’s the definitive record of who owns what in your company. When managed properly, your cap table serves as a single source of truth for ownership stakes, investment history, and equity distribution. When neglected, it becomes a liability that can derail financings, complicate exits, and create unnecessary legal headaches.

Many founders underestimate the importance of proper cap table management until they face a critical event — a new funding round, an acquisition offer, or an audit. By then, reconciling discrepancies becomes exponentially more complex and expensive. A clean cap table builds investor confidence, streamlines due diligence, and provides crucial insights for strategic decision-making.

Here are 5 Do’s and Don’ts to help you manage your cap table effectively and avoid costly mistakes during fundraising or exits.

The Do’s of Cap Table Management

#1 – Do Maintain Digital Records

Invest in dedicated cap table management software rather than relying on spreadsheets. Modern platforms automatically calculate dilution, generate waterfall analyses, and maintain audit trails of all changes. This significantly reduces human error and provides modeling capabilities for future fundraising scenarios.

#2 – Do Document Everything

Every equity event needs proper documentation. This includes:

Without this documentation, your cap table becomes a collection of numbers without legal backing — essentially worthless during due diligence.

#3 – Do Reconcile Regularly

Schedule quarterly reconciliations between your cap table and legal documents. This includes:

Regular reconciliation prevents small discrepancies from becoming major problems later on.

#4 – Do Plan for Tax Implications

Work with tax advisors to structure equity issuances optimally. This includes:

The Don’ts of Cap Table Management

#1 – Don’t Neglect Post-Financing Updates

After closing a financing round, immediately update your cap table to reflect:

Failing to update these details creates discrepancies that compound over time, making future due diligence a nightmare.

#2 – Don’t Overlook Complex Securities

Many cap tables become inaccurate when they fail to properly account for:

These instruments require specialized legal knowledge to represent correctly.

#3 – Don’t Make Handshake Promises

Verbal equity promises create nightmares for cap table management. Never promise equity without:

Informal promises often lead to disputes and can even trigger serious legal violations.

#4 – Don’t Forget Secondary Transactions

When existing shareholders sell shares to new investors (secondary transactions), many companies fail to:

Secondary transactions can significantly alter your cap table and must be meticulously tracked.

#5 – Don’t Manage Without Legal Oversight

Cap table management requires legal expertise. Common pitfalls include:

Regular legal review helps ensure compliance and accuracy, reducing risk for you and your investors.

Your Cap Table: Asset or Liability?

Consider your current practices. Are you confident in the accuracy of your cap table? Could you provide clean cap table information to a potential investor tomorrow if needed? What would happen if your largest investor asked for a detailed breakdown of their ownership position?

Many founders discover problems only when they’re most damaging — during due diligence for a financing or acquisition. By then, resolving issues often involves expensive legal work, delayed closings, and sometimes renegotiation of deal terms.

A well-maintained cap table, conversely, operates as a strategic asset. It enables you to:

Take Control of Your Cap Table

The difference between a cap table that propels your company forward versus one that creates endless headaches comes down to three things: sound process, specialized expertise, and meticulous attention to detail. Founders who implement proper practices early avoid the painful (and expensive) scramble of fixing problems during critical moments like fundraising or acquisition.

Ready to transform your cap table from a potential liability into a genuine strategic asset? Book a call with our team today for guidance tailored to your specific situation.

Disclaimer: This article is for informational purposes only and does not constitute legal advice or establish an attorney-client relationship. For personalized legal guidance, consult a qualified attorney.