1. Who Uses Cap Tables?
2. What to Put in Your LLC Cap Table?
3. Using a Waterfall Analysis
4. How to Use a Cap Table
5. How to Create a Cap Table

Updated November 17, 2020:

An LLC cap table is a spreadsheet that contains all of the following information for a startup or other fledgling business:

  • Common shares.
  • Preferred shares.
  • Warrants.
  • The people who own shares.
  • How much these people paid for their shares.

Overall, a cap table is used to convey the percentage of ownership each investor has in the company. It also describes the value of investors' securities and how much they dilute over time.

A company can also use an LLC cap table to keep track of other legal documents, such as:

  • Transfers.
  • Stock issuances.
  • Conversion of debt to equity.
  • Cancellations.

Who Uses Cap Tables?

Cap tables are most frequently used by the following types of business people:

  • Entrepreneurs.
  • Venture capitalists.
  • Investment analysts.

It is the responsibility of executives in the company to manage all documents and transactions since the company was formed, so creating the cap table is often in their hands.

What to Put in Your LLC Cap Table?

Members of an LLC need to create a cap table in the early stages of the company's formation before they create other company documents. Generally, most LLC cap tables are created after a few rounds of financing, once the sources of funding become complex. This way, the company can keep track of potential funding sources, initial public offerings, and any upcoming mergers or acquisitions.

In the simplest form of a cap table, the spreadsheet lists all shareholders and how many shares they own. However, you can also include the following information for a more robust document:

  • Pre-money valuation, which is how much your company is worth before investments.
  • Price per share, which is how much investors will pay for initial offerings.
  • Post-money valuation, which is the pre-money valuation plus the total amount of investments.
  • Post-money shares, which is the post-money valuation divided by the price per share.
  • Investor percent ownership, which is the investor shares divided by the post-money shares.

Using a Waterfall Analysis

A waterfall analysis is how much each shareholder would get in the event of liquidity based on the amount of available equity. Because you never know when you might need to liquidate, a waterfall analysis keeps you prepared.

A waterfall analysis uses a range of assumptions to predict how you would distribute proceeds to your shareholders. Cap tables play an important role in a waterfall analysis because they list the accounting ownership of each shareholder. This is different from economic ownership, which is just the percentage of ownership available to equity.

How to Use a Cap Table

LLCs can use cap tables for a number of reasons, including:

  • Raising money from investors, as the cap table shows how the company is structured as well as past financing rounds. Often, cap tables can answer investors' questions and let them see how their investments will impact other investors. The cap table also lets them see where they will fare in the liquidity rank. Obviously, the higher the investor is on the list, the happier they will be.
  • Hiring employees, as the cap table lets a company be transparent with the new hires. With this kind of transparency, employees will perform better and be more motivated to stay with the company for longer.

How to Create a Cap Table

First, you'll need to determine the design of your cap table. Choose a layout that is simple and organized, so even someone unfamiliar with your business can see who owns shares and how many outstanding shares are available.

Most LLCs create cap tables that list the names of all investors along the y-axis and the type of securities along the x-axis. You can also consider a pre-made template that just needs you to input specific figures and information.

In the first row, you'll want to include how many shares the entire company has. After that, you can include the following information:

  • Authorized shares, which is how many shares your company can issue.
  • Outstanding shares, which is how many shares your shareholders currently hold.
  • Uninsured shares, which is how many shares you haven't issued yet.
  • Shares for stock option plans, which are shares you are saving for future employees.

If you need help with an LLC cap table, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.