We often get this question from founders who don’t yet have a cap table or are reluctant to give us access to it. When you’re running a company, especially a startup, you may not want many people knowing what the cap table looks like. But you DO need to share it with your CPA!

What is a Cap Table?

A cap table, or capitalization table, is a table that shows the equity ownership capitalization of a startup, including the total value of the shares, total number of shares, the number of shares owned by individual investors, and the percentage of ownership each investors holds. Typically, a startup’s lawyers will manage the cap table using cap table management softwaresuch as Carta. Or, for early-stage companies, they may simply use Excel spreadsheets.

What is a Capitalization Table For?

Why a Capitalization Table is Important:

  • Defines ownership and equity: Clearly shows the ownership percentage of each person or entity. This helps avoid disputes in case of multiple stakeholders, and clearly shows all parties who owns which and how many shares of stock in your startup.
  • Aids decision-making: Determines the voting power of each shareholder for key company decisions. Not only do shareholders get votes on important topics, different classes of shares have specific voting powers at many startups (for example, many preferred shares vote as classes on topics like accepting new investors into the company). The cap table helps lay out all of these ownership stakes clearly so votes can be taken.
  • Plans for equity grants: Helps plan future equity distribution to employees or investors. 
  • Useful for fundraising: Demonstrates company ownership structure to potential investors. A good capitalization table helps founders negotiate with new investors - creating scenarios that show impacts on ownership. Or even planning a fundraising strategy; should you raise now or wait until you have a higher valuation in the future due to your growth. 
  • Simplifies share issuance: Easily shows the impact of issuing new shares on existing shareholders. Your lawyers will use it extensively at fundraises.

A capitalization table serves as a valuable resource for all stakeholders by providing a clear understanding of ownership and equity, aiding decision-making, planning equity grants, being useful for fundraising, and simplifying share issuance. But, because it holds very private information about equity capitalization which can lead to founders being a little nervous about allowing their CPA (Certified Public Accountant), like Kruze Consulting, to have access to it.

Why your CPA should have Access to your Cap Table

There are a couple of really good reasons to allow your CPA to have access to your cap table.

Your Cap Table needs to be reconciled

By giving your CPA access to your cap table it allows us to review and reconcile it, if need be.

For example: Your CPA will look at the amount of money that each investor should have put into your equity accounts in your financial system, like QuickBooks, to make sure you capture all the money you were supposed to get.

This is for a very good reason, as it isn’t unheard of for wires to bounce or for investors to not actually send the money. This can then leave you short and it would be very embarrassing to figure that out up to a year later. Don’t risk having to go back to the board to admit you didn’t actually get that $250,000 capital. This may sound odd but here at Kruze we’ve seen it happen! We also have a video on this called “Reconciling the Cap Table” so go and check it out to learn more!

Tax agencies need ownership breakdowns

The second crucial reason to allow your CPA access to your cap table is that almost every tax agency needs us, your startup CPA firm, to provide breakdowns of ownership percentages for institutions and for specific shareholders. Especially the founders and large shareholders.

For example: It isn’t just your federal tax return, it can also a state tax requirement. The Delaware franchise tax needs share counts, and even for some municipal filings you will need to be able to provide information on share counts and ownership. So getting access to that cap table is critical for your tax firm.

Real-time access is the best option

It is completely fine to do an export once a year and provide it to your CPA, but providing access to Carta is actually better since it means we can see the changes in real-time.

A typical problem that could arise if you don’t allow access is an out-of-date cap table. For instance, you might export your cap table in October around a fundraise, but then you might make a number of option grants, or someone could leave without being fully vested in December. The October export won’t include those changes so your CPA needs a December 31st year-end cap table in order to complete accurate tax filings.With access to Carta we can look in real-time and see what happened on a certain date.

Your startup accountant needs to see your cap table

To summarize, we understand that cap tables can be sensitive but the two main reasons you should give your CPA access are:

  1. Your accountant needs to reconcile your cap table in order to make sure you collected all the money you are supposed to have collected from your investors.
  2. Your accountant needs it to accurately fill out tax forms.

If you have any other questions on taxes, cap tables, or 409A valuations, or, if you just need information on startup bookkeeping, startup accounting, or taxes please contact us.

You can also follow our youtube channel and keep an eye on our blog for additional information on accounting, finance, human resources, and taxes for startups!