Cap Table

What Is a Cap Table?

A capitalisation table (cap table) is a document that records every equity holder in a company — founders, employees, investors, and option holders — along with the class of securities they hold, the number of shares, the percentage ownership, and the price per share for each investment round.

Cap tables are one of the first documents reviewed in M&A due diligence. An accurate, clean cap table demonstrates governance maturity and gives buyers confidence that ownership rights are unambiguous and transferable.

What a Cap Table Includes

A complete cap table records:

• Ordinary shares (or common stock) — typically held by founders and employees
• Preference shares (or preferred stock) — typically held by institutional investors, with liquidation preferences and anti-dilution rights
• Options and warrants — including employee share option plans (ESOPs) and warrants held by advisors, early investors, or lenders
• Convertible notes — instruments that convert to equity on a qualifying event, including SAFEs and convertible loans
• Share classes — the rights attached to each class (voting rights, dividend rights, liquidation preference, anti-dilution provisions)
• Option pool — allocated and unallocated options reserved for employees

A fully diluted cap table shows the ownership percentages assuming all options, warrants, and convertibles have been exercised or converted.

Cap Tables in M&A Transactions

Cap tables are reviewed carefully in M&A due diligence for several reasons:

Identifying all stakeholders: Before a transaction can close, every holder of equity, options, warrants, and convertibles must consent to or be paid out as part of the deal. A cap table with unknown or unresolved parties creates deal risk.

Liquidation waterfall: Preference shares carry liquidation preferences — rights to receive proceeds before ordinary shareholders in a sale. For companies with multiple investment rounds, understanding the liquidation waterfall (the order in which proceeds are distributed) is essential to calculating net proceeds for the founding team and ordinary shareholders.

ESOP vesting acceleration: Employee option plans frequently include provisions for acceleration on a change-of-control. Buyers need to understand the total diluted option pool, vesting status, and whether acceleration will be triggered.

Convertible note treatment: Convertible notes outstanding at the time of a sale either convert to equity at the agreed price (adding new shareholders to the cap table) or must be repaid. The treatment must be agreed as part of transaction structuring.

Anti-dilution adjustments: Preference shares with anti-dilution provisions may adjust their conversion price in the context of an exit if the deal price is below the original investment price. This can significantly affect the effective ownership of preference shareholders and ordinary shareholders.

Common Cap Table Problems in M&A

The most common cap table issues that slow or complicate M&A transactions:

1. Unissued option grants — options promised to employees but never formally granted or vesting records not maintained
2. Missing shareholder agreements — equity issued without a corresponding signed shareholder agreement defining rights
3. Nominee shareholders — particularly in Southeast Asian companies where nominee arrangements were used to satisfy local ownership requirements
4. Undocumented early investors — seed investors who received shares without proper documentation
5. Expired options — options that have vested but where the exercise price was never paid and the shares were never issued
6. Convertible note ambiguity — conversion price formulas in older convertible notes that are ambiguous under current cap table calculations

Founders should commission a formal legal review of the cap table 12-24 months before a planned sale and resolve any structural issues before starting the M&A process. A cap table problem discovered in due diligence can stall or kill a transaction.

Cap Table and Exit Proceeds

When a business is sold, proceeds are distributed according to the liquidation waterfall in the cap table. For VC-backed companies with multiple preference share classes:

1. Senior liquidation preferences are paid first (typically the most recent investors)
2. Participating preference rights may allow preference shareholders to also participate in proceeds above their preference
3. Ordinary shareholders (founders and employees) receive remaining proceeds

In a low-price exit, preference shareholders with strong liquidation rights may receive all proceeds, leaving ordinary shareholders (founders and employees with vested options) with nothing. Understanding this dynamic before agreeing a sale price is critical for founding teams.

Clean Cap Table as M&A Preparation

Amafi advises technology and growth company founders across Asia Pacific on sell-side M&A. A clean, fully documented cap table is one of the most impactful pieces of preparation founders can complete before starting a sale process — it avoids deal delays, builds buyer confidence, and ensures the founding team understands their own economics in every potential exit scenario. Amafi charges a 2% success fee capped at US$500,000 — no retainer, no fees unless a deal completes.