Cap table

At its simplest a cap table lists shareholders and their holdings. It becomes useful, and complicated, once a company has promised ownership it has not yet issued: options held by staff, convertible notes that turn into shares later, or an agreement with an adviser to be given equity on some future condition.

This is what "fully diluted" means. The fully diluted view assumes every one of those promises is honoured, and shows the ownership that would result. It is almost always the view that matters, because it is the honest one — the founder holding 70% on the issued register may hold 52% fully diluted, and it is better to learn that before an investor does the arithmetic in front of you.

Cap tables go wrong slowly and then all at once. Equity promised in a conversation and never documented, a departing co-founder whose shares were never dealt with, a percentage offered to an early employee without a vesting schedule. None of these cause a problem until money is being raised or the business is being sold, at which point they all surface simultaneously and the deal waits.

A cap table is a management record, not the legal one. The company's statutory share register, its constitution or replaceable rules, the shareholders' agreement and the share issue documents are what actually govern ownership. When the spreadsheet and the documents disagree, the documents win — which is why a tidy spreadsheet is not on its own evidence of anything.