Capitalization Table Basics for Ontario Private Company Founders

Before you close your first investment round, before you grant your first stock option, before you sign a shareholders' agreement — you should understand your capitalization table (commonly called the "cap table"). It is the master record of who owns what in your company and on what terms.

A cap table that is out of date, incomplete, or misunderstood has derailed deals and caused costly disputes. For Ontario founders raising capital, understanding cap table basics is not just accounting — it is governance.

What Is a Capitalization Table?

A capitalization table is a spreadsheet or document that records every form of ownership or potential ownership in a corporation. At its simplest, for a company with two founders, it shows:

As the company grows, the cap table expands to include investors, option holders, warrant holders, and outstanding convertible instruments. It becomes the source of truth for who is entitled to what in any transaction.

Components of a Complete Cap Table

1. Issued and outstanding shares

These are shares that have actually been issued by the corporation — recorded on the share register, subscribed for, and paid. This includes:

• Common shares held by founders and employees.
• Preferred shares held by investors (if applicable), showing each series separately (Seed Preferred, Series A Preferred, etc.).

For each shareholder, the cap table shows name, share class, number of shares, and percentage of that class.

2. Options and warrants

Options give the holder the right to purchase shares at a set price (the "exercise price" or "strike price") in the future. Warrants are similar but are usually issued to lenders or as part of a financing, not to employees.

Outstanding options and warrants have not yet been exercised — no shares have been issued — but they represent potential dilution. A complete cap table includes:

• Total number of options granted under any option plan.
• Options vested vs. unvested.
• Strike price.
• Expiry date.

Under the Ontario Business Corporations Act and its federal equivalent, option plans and grants should be authorized by the board, documented, and tracked in the minute book.

3. Convertible instruments (SAFEs, convertible notes)

SAFEs and convertible notes outstanding have not yet converted into shares, but they will — upon a qualifying event. A complete cap table models the "as-converted" position: what ownership percentages look like after all convertible instruments convert.

For each outstanding instrument, track:

• Investor name and amount invested.
• Valuation cap and/or discount rate.
• Interest accrued (for notes).
• Estimated number of shares on conversion (requires a modeled conversion price).

4. Option pool

An option pool (also called an equity incentive pool) is a block of shares reserved for future issuance to employees, advisors, and service providers through option grants. Even shares not yet granted are typically included in the fully diluted share count when calculating dilution.

Investors often require that an option pool be established — or expanded — before or as part of a funding round. This "option pool shuffle" means the pool is created from shares that dilute the founders first, before the investor's money comes in.

Basic vs. Fully Diluted Share Count

This distinction matters enormously.

• Basic shares outstanding: shares actually issued — nothing more.
• Fully diluted shares outstanding: all issued shares plus all options, warrants, and convertible instruments treated as if they had been exercised or converted.

When an investor says they want 20% of the company, they almost always mean 20% of the fully diluted share count — after accounting for all the options and convertible instruments that could become shares. Founders who calculate dilution on a basic share count will be surprised by how much they give up.

How Dilution Works

Each time new shares are issued — whether to an investor, through option exercises, or through conversion of a note — the total share count increases. Every existing shareholder's percentage ownership decreases, even though the number of shares they hold stays the same. This is dilution.

A simple example:

The founder's shares did not change. The percentage did.

Pre-emptive rights in a shareholders' agreement give existing shareholders the right to purchase new shares in proportion to their existing ownership, preventing dilution without the shareholder's consent. Negotiate whether — and to what extent — you or your investors have pre-emptive rights.

The Shareholders' Register vs. the Cap Table

The shareholders' register is a formal legal document required under the OBCA — an official record of every shareholder, their address, and the number of shares they hold. It is part of the minute book.

The cap table is a working financial model. It typically includes the shareholders' register data plus options, warrants, and convertible instruments, presented in a way that lets you model scenarios (new rounds, exits, option exercises).

Keep both current. A cap table built on an out-of-date register will give you wrong answers.

When You Need a Lawyer to Help with the Cap Table

The cap table is a legal document as much as a financial one. You need legal help when:

• You are issuing shares to anyone new — including investors, employees, or service providers.
• You are creating or amending a share class (requires articles amendment under the OBCA).
• You are setting up an option plan.
• You are taking on convertible instruments.
• You are preparing for an investment round and need to model post-closing dilution.
• You are approaching a sale and need to calculate each holder's entitlement.

Frequently asked questions