Cap Table

What is a cap table?

Cap table (capitalisation table, German Beteiligungsübersicht) refers to the tabular overview of all shareholders of a company, their shares and their ownership percentages. It also records all rights that may lead in future to shares or share-like payment claims: virtual shares for employees, option commitments and convertible loans, that is, loans that are later converted into shares. Put simply, the cap table answers the question who owns how much of the company, today and after all commitments have been honoured.

The cap table is not a document regulated by law but a working tool of the company and its investors. In startups, it is usually kept as a spreadsheet or in specialised software. Legally decisive for the ownership of shares in a GmbH (German limited liability company) is the shareholder list (Gesellschafterliste) included in the commercial register, the official directory of the shareholders and their shares. The cap table builds on it and adds the economic view. It is needed in every funding round, in the review by investors or buyers (due diligence), for employee participation and for the distribution of proceeds in a sale (exit). The legal composition of the shareholder group, including trusteeship and encumbrances, is described by the shareholder structure.

Structure of a cap table: columns and details

A complete template for the cap table of a GmbH typically contains the following details:

• Shareholder: name, for companies registered office and register number, where applicable trust arrangements.
• Shares: serial numbers and nominal amounts, matching the shareholder list.
• Share class: ordinary shares or preferred shares of a particular round.
• Contribution: nominal amount, additional payment into the capital reserve, price per share and date of acquisition.
• Preferential rights: liquidation preference, that is, priority in the distribution of sale proceeds, with multiple and rank, as well as anti-dilution protection.
• Virtual shares: granted, of which vested, and the not yet granted remainder of the employee pool.
• Convertible instruments: amount, accrued interest, discount on the price of the next round and valuation cap, that is, the maximum valuation at which conversion takes place.
• Percentages: share of the share capital and share on a fully diluted basis, in which all commitments are counted as if they had already been honoured.

The current position is accompanied by a history of every change: formation, capital increases, assignments, divisions and consolidations of shares, each with the date and the notary's deed number. With it, the unbroken chain of shares since formation can be evidenced in due diligence.

Share capital, shares and shareholder list

The share capital of a GmbH is at least EUR 25,000 (Section 5(1) of the GmbH Act, GmbHG) and is divided into shares. Their nominal amounts are in full euros, so at least EUR 1, and together equal the share capital (Section 5(2) and (3) GmbHG). In growth companies, shares are often created with a nominal amount of EUR 1 each. The number of shares then corresponds to the nominal amount in euros, and shares can be easily divided in later transfers. Under Section 47(2) GmbHG, each euro of a share carries one vote, unless the articles of association provide otherwise.

As against the company, only a person entered in the shareholder list included in the commercial register is regarded as a shareholder (Section 16(1) GmbHG). For each shareholder, the list shows the shares with serial number, nominal amount and percentage holding (Section 40(1) GmbHG). After every change, a new list is filed, by the notary where a notary is involved (Section 40(2) GmbHG). Under the conditions of Section 16(3) GmbHG, even a good-faith acquisition from a person without title who stands in the list as owner is possible. The details on shares in the cap table must therefore match the most recently included list; a deviation is a finding, not a formality.

Virtual shares as a separate column

Employees of German growth companies are mostly given a stake through virtual shares, that is, through an employee programme (employee stock option plan, ESOP) in virtual form (VSOP). They create a contractual claim against the company to a payment measured by the proceeds per share on an exit. They do not appear in the shareholder list, and they convey no voting rights.

In the cap table, they therefore stand in a separate column, split into granted, already vested (vesting) and not yet granted shares. Economically, they dilute like real shares, because the payouts reduce the exit proceeds of the shareholders. The payout is taxed as employment income for the employees; for the proceeds calculation, what matters is that the payment burdens the company and thus all shareholders proportionately. A cap table without this column shows a higher economic holding of the shareholders than actually exists.

Fully diluted presentation

The fully diluted presentation (fully diluted cap table) adds to the shares all rights that may in future lead to shares or share-like payments. These include virtual shares including the free pool, genuine option commitments and the conversion of outstanding convertible loans. For convertible loans an assumption is needed, because the number of conversion shares depends on the price of the next round. A calculation at the valuation cap or at an assumed round price is common.

Formula: fully diluted percentage = shares of a holder / (shares + virtual shares including free pool + options + conversion shares)

Before every round, a post-round presentation (pro forma cap table) with new shares, pool top-up and conversions is also prepared. It is the basis on which price per share, pre-money valuation and post-money valuation are negotiated. The distribution of proceeds at different sale prices builds on the fully diluted presentation and adds the preferences (waterfall analysis).

Worked example: fully diluted cap table of a software GmbH

The share capital of a software GmbH of EUR 40,000 is divided into 40,000 shares of EUR 1 each. Founder A holds 16,000, founder B 12,000, a business angel (a private individual who invests their own money) 4,000 and a seed investor from an early round 8,000. The virtual pool comprises 5,000 shares, of which 3,000 are granted, and of these 1,000 are vested. A convertible loan of EUR 400,000 including interest converts in the next round, at a valuation of at most EUR 9 million before the round on a fully diluted basis.

• Percentages of share capital and voting rights: A 16,000 / 40,000 = 40%, B 30%, business angel 10%, seed investor 20%
• Fully diluted basis without conversion: 40,000 shares + 5,000 virtual shares = 45,000
• Conversion price, set at the cap for planning purposes: EUR 9 million / 45,000 = EUR 200; conversion shares: EUR 400,000 / EUR 200 = 2,000
• Fully diluted basis with conversion: 45,000 + 2,000 = 47,000
• Fully diluted percentages: A 16,000 / 47,000 = around 34.04%, B around 25.53%, business angel around 8.51%, seed investor around 17.02%, pool around 10.64%, lender around 4.26%

Founder A has 40% of the votes, but the economic share of future proceeds, before preferences are taken into account, is around 34%. For resolutions at the shareholders' meeting, the first figure counts; for the negotiation of the next round and for the distribution of proceeds, the second. If the loan converts at a discount at a price below EUR 200, the number of conversion shares rises, and all other percentages fall.

Distinction: cap table, shareholder list and shareholder structure

• Shareholder list: the legally decisive directory under Section 40 GmbHG. It contains only shares, no virtual shares and no convertible instruments.
• Shareholder structure: the legal composition of the shareholder group with trust arrangements, encumbrances and transfer restrictions. The cap table is its numerical presentation, extended by economic rights.
• Waterfall analysis: the distribution of exit proceeds among all participants, taking the preferences into account. It presupposes a complete, fully diluted cap table.

Common mistakes

• Deviation from the shareholder list. Transfers, divisions or capital increases are recorded in the cap table, but a new list was never filed, or the other way round.
• Percentage commitments instead of share numbers. A commitment of “1% of the company” leaves open what base and what point in time it relates to. Only a number of virtual shares or a nominal amount is unambiguous.
• Informal commitments not recorded. Stakes promised orally or by email to advisers or early employees can create claims and otherwise come to light only in the review.
• Interest not carried forward. Accrued interest that converts with the convertible loan increases the number of conversion shares.
• Lapsed virtual shares not returned. If shares of departed employees remain shown as granted, the free pool appears smaller than it is.
• Several versions. Files maintained in parallel without a clearly valid version lead to contradictory figures in the data room, the collection of documents for the review.

Frequently asked questions

Is the cap table legally binding?

No. For shares, the shareholder list and the underlying notarial deeds count; for virtual shares, the plan terms and the individual commitments. The cap table summarises these sources and is only as correct as they are.

Who is given access to the cap table?

Shareholders and investors within their information rights, as well as investors and prospective buyers in the review through the data room. Employees usually receive only details of their own virtual shares and the total number of shares that they need to calculate their value.

Is an Excel template enough as a cap table?

With few shareholders, yes, provided the table shows shares, virtual shares, convertible instruments and both percentages separately. With several rounds, virtual programmes and convertible loans, the risk of error rises; specialised software then provides a version with a change log. In both cases there must be exactly one valid version.

Who keeps and updates the cap table?

The company, in practice the management or the finance function. Ongoing maintenance (cap table management) includes capital increases, assignments, granting and lapse of virtual shares and new convertible loans. After every change, the position is reconciled with the shareholder list.

How can many small holders be bundled?

Through a joint holding company or a pooling agreement. The holding company appears as one shareholder in the list; the pooling agreement leaves the individual holdings in place and regulates their uniform voting.

The Roemer Capital view

At the start of every engagement, we reconcile the cap table line by line with the shareholder list most recently included in the commercial register and the notarial deeds. We then extend the fully diluted presentation by all virtual shares, commitments and convertible loans. This reconciled version is the basis of every conversation about valuation and ownership percentages.

Because a data room should be ready to provide within 24 hours, the cap table with its history, index of deeds and participation plans is among the first documents that we complete with the company. Deviations from the shareholder list are cleaned up by the company's law firm; we make sure that this happens before investors are approached and not only in their review.