Cap Table Basics: What UK Founders Need to Get Right Early

Ravi and Tom started their software company on a napkin in a Manchester pub: fifty-fifty, shake on it. Two years later Tom had left, still owned half the business, and their first serious investor took one look at the ownership record and walked away. Nothing illegal had happened. They had simply never treated their cap table as something that mattered until the day it decided whether they got funded. That spreadsheet — or the lack of one — shapes every round you will ever raise.

EMI share option limits	Before	From 6 April 2026
Company-wide option value	£3 million	£6 million
Company gross assets	£30 million	£120 million
Employees	250	500
Maximum option life	10 years	15 years
Limit per employee	£250,000	£250,000 (unchanged)

Fully diluted is the only number investors care about

A cap table records who owns what: every shareholder, every share class, how many shares each holds, plus the options, warrants and convertible instruments waiting in the wings. There are two ways to read it. The issued view shows shares that exist today. The fully diluted view pretends every option has been exercised and every convertible has turned into shares. Founders tend to quote the first because it flatters them; investors always work from the second. If you own 60% of issued shares but there is a 15% option pool and two convertible notes outstanding, your real number is much lower, and the first investor meeting is a poor place to discover that.

The founder split, and why vesting saves friendships

Ravi and Tom’s mistake is the most common one in early-stage Britain: an equal split on day one with nothing stopping a departing founder keeping it all. The fix costs almost nothing if you do it at the start. Founder shares are normally made subject to vesting — commonly four years with a one-year cliff — so a co-founder who leaves after eight months keeps nothing, and one who leaves after two years keeps roughly half. Good leaver and bad leaver clauses decide what price any unvested shares are bought back at. Put all of it in writing alongside a proper partnership or shareholders’ agreement, because “we trust each other” is not a clause.

EMI option pools got much bigger in April 2026

Enterprise Management Incentives are the UK’s most generous way to give employees share options, and the rules changed significantly on 6 April 2026. The total value of unexercised EMI options a company can hold doubled from £3 million to £6 million. The gross assets ceiling jumped from £30 million to £120 million, and the employee limit rose from 250 to 500. Options can now be exercised for up to 15 years instead of ten, and that longer life applies to existing unexercised options too. The £250,000 limit per employee did not change. For a growing company, this means EMI stays available far longer than it used to — so an option pool you assumed you would outgrow may now last until a much later round.

The option pool shuffle founders pay for without noticing

Here is a trick that is rarely explained honestly. An investor offers a £4 million pre-money valuation and asks for a 10% option pool to be created before the money goes in. That pool comes entirely out of the existing shareholders — which usually means the founders — while the new investor is untouched. Create the same pool after the investment and the investor shares the dilution. The effect of a pre-money pool is that the real valuation is lower than the headline one. It is often a reasonable request, but it is a negotiable one, and the size of the pool should match an actual hiring plan rather than a round number somebody suggested.

SEIS and EIS quietly limit your share classes

Most UK seed rounds rely on SEIS or EIS tax relief, and those schemes have firm rules about what investors can hold. The shares must be ordinary shares with no preferential right to dividends, no preferential right to assets if the company is wound up, and no right to be redeemed. Give a seed investor a neat preference share — paid back first on a sale — and you can quietly remove the 50% or 30% relief they were counting on. Investor protections at this stage belong in the shareholders’ agreement and articles instead. It is the same trap that makes convertible loan notes awkward for British angels, and it is worth checking before any documents are drafted.

Keep the table and Companies House in step

Your spreadsheet is not the legal record; Companies House filings and your statutory registers are. When new shares are allotted, the company must file form SH01 within one month, and your shareholders appear on the annual confirmation statement. A cap table that disagrees with the public record is exactly what makes a buyer or investor nervous, and fixing years of drift under deadline is miserable and expensive. Board and shareholder approvals for each issue should sit in the minute book. If you are setting up now, get this right from the moment you register the company and keep the record in proper software or a well-kept spreadsheet that someone actually owns.

Model the next round before you agree anything

Every round reduces your percentage, and that is fine — a smaller share of a bigger company is the whole point. What is not fine is being surprised. Before signing a term sheet, run it through the table: issued and fully diluted ownership, the option pool pre-money and post-money, every convertible or advance subscription converting at its cap or discount, and one more round after this one. Friends-and-family rounds and crowdfunding campaigns can add dozens of tiny holders, so ask whether a nominee structure keeps them on one line. Then ask an accountant or a startup solicitor to check the model. It is a cheap hour compared with a bad round.

Selling shares later: secondaries and exits

A cap table does not only matter when money comes in. It matters when shares change hands. A founder selling a few shares to a new investor, an early employee cashing out, or a whole-company sale all run through the same record, and most articles of association contain pre-emption rights giving existing shareholders first refusal. Drag-along and tag-along clauses decide whether a majority can force a sale and whether minority holders get the same deal. None of this feels urgent in year one, and all of it becomes urgent the week a buyer appears. If a sale is even a distant idea, read about planning an exit from your business early, because a clean cap table is one of the first things a buyer checks.

What happened to Ravi and Tom

They sorted it, eventually. Tom agreed to sell back most of his shares at a fair price, a vesting schedule went onto every founder share, an EMI pool was set up for the first hires, and the register was matched to Companies House line by line. Eight months later the same investor came back and invested. The business had not changed; the record of who owned it had. That is the quiet truth about a cap table: it is rarely exciting, and it decides more funding conversations than any pitch deck. Build it properly now, and read how a funding round actually runs before the first investor asks to see it.

Frequently asked questions

What is a cap table?

A cap table is the record of who owns a company: shareholders, share classes, options and convertibles, showing each holder’s percentage now and fully diluted.

What does fully diluted mean?

It shows ownership as if every option, warrant and convertible had already become shares. Investors use this figure rather than today’s issued shares.

What changed with EMI options in April 2026?

From 6 April 2026 the company option limit rose to £6 million, gross assets to £120 million, employees to 500, and option life to 15 years.

Can SEIS investors hold preference shares?

No. SEIS and EIS shares must be ordinary shares without preferential dividend or winding-up rights and without redemption rights, or relief can be lost.

What is the option pool shuffle?

It is when an option pool is created before new investment, so the dilution falls only on existing shareholders and lowers the real valuation.

Do I need to tell Companies House about new shares?

Yes. File form SH01 within one month of allotting new shares, and keep shareholders up to date on the confirmation statement.

This article is general information, not legal, tax or investment advice. EMI, SEIS and EIS rules are technical and depend on the company and individuals meeting detailed conditions; the limits described reflect the position from 6 April 2026. Take professional advice before granting options, issuing shares or agreeing investment terms.