Cap Table Setup Guide

Purpose

This recipe produces a complete, investor-ready capitalization table for an early-stage startup, including founder equity allocation, vesting schedules, option pool reserve, and documentation for 83(b) elections. The output is a structured cap table (in software or spreadsheet) with all supporting legal documentation, ready for SAFE/convertible note issuance and future priced rounds. [src2]

Prerequisites

• Delaware C-Corp incorporation — Certificate of Incorporation filed with Delaware Division of Corporations ($89-$189 filing fee)
• Co-founder agreement on split approach — verbal or written consensus on equal vs. contribution-based equity division
• EIN from IRS — Employer Identification Number for the company (free, apply online at irs.gov)
• Startup attorney or legal service — Clerky, Stripe Atlas, or local startup attorney for stock purchase agreements
• Cap table tool — Carta (free Launch tier), Pulley ($1,200/yr), or spreadsheet template

Constraints

• 83(b) election has a hard 30-day filing deadline from the stock grant date. Missing this deadline is irrevocable and can result in massive tax liability as shares vest and appreciate. [src6]
• 409A valuation is required before granting any stock options to employees, advisors, or contractors. Issuing options without a 409A creates IRS penalties up to 40% of option value. [src8]
• Option pool created pre-money (before investor pricing) dilutes founders only; post-money dilutes all shareholders including investors. [src4]
• Standard Delaware C-Corp authorizes 10,000,000 shares of common stock at $0.0001 par value. [src1]
• All founder stock must be subject to vesting (typically 4-year with 1-year cliff) even for the idea originator. [src7]

Tool Selection Decision

Which path?
├── Solo founder OR 2 co-founders, pre-funding, budget-conscious
│   └── PATH A: Spreadsheet + Attorney — Google Sheets template + Clerky/Stripe Atlas
├── 2-3 co-founders, planning to raise within 12 months
│   └── PATH B: Carta Free — Carta Launch tier + startup attorney
├── Already in investor conversations, need scenario modeling
│   └── PATH C: Pulley Paid — Pulley Startup plan + 409A + attorney
└── Complex structure (SAFEs + notes + multiple classes)
    └── PATH D: Full-Service — Carta/Pulley + dedicated startup attorney

Execution Flow

Step 1: Determine Share Structure

Duration: 30 minutes · Tool: Calculator / spreadsheet

Define the authorized and issued share structure for your Certificate of Incorporation.

Standard Delaware C-Corp Share Structure:
──────────────────────────────────────────
Authorized Common Shares:    10,000,000
Par Value per Share:         $0.0001
Share Price at Founding:     $0.0001 (par value)

Initial Allocation Plan:
  Founders (issued):         7,000,000 - 8,000,000 shares (70-80%)
  Option Pool (reserved):    1,000,000 - 2,000,000 shares (10-20%)
  Unissued (available):      remainder

Example — 2 co-founders, 15% option pool:
  Founder A:    4,250,000 shares (42.5%)
  Founder B:    4,250,000 shares (42.5%)
  Option Pool:  1,500,000 shares (15.0%)
  Unissued:       000,000 shares  (0.0%)
  ─────────────────────────────────────
  Total:       10,000,000 shares (100%)

Verify: Total issued + reserved + unissued equals authorized shares exactly · If failed: Re-check math. Common error is double-counting the option pool.

Step 2: Choose Equity Split Framework

Duration: 1-2 hours · Tool: Decision framework

Select the equity split approach based on your team dynamics. [src5]

Equity Split Decision Tree:
──────────────────────────────────────────
Q1: Are all co-founders contributing equally?
├── Yes → EQUAL SPLIT (e.g., 50/50 or 33/33/34)
└── No → Q2: Can you quantify contribution differences?
    ├── Yes → CONTRIBUTION-BASED SPLIT
    │         Score each founder on 6 factors (1-10 each):
    │           1. Idea origination and IP contribution
    │           2. Domain expertise and industry relationships
    │           3. Technical ability to build the product
    │           4. Time commitment (full-time vs part-time)
    │           5. Capital investment
    │           6. Opportunity cost (salary sacrificed)
    └── No → DYNAMIC SPLIT (Slicing Pie)
              Track contributions over time in "slices"

Common Splits for 2 Co-Founders (2025 data):
  Equal (50/50):     ~46% of startups
  Near-equal (45/55): ~25% of startups
  Unequal (60/40+):  ~29% of startups

Verify: All co-founders have explicitly agreed to the split in writing · If failed: If co-founders cannot agree, complete the co-founder evaluation framework first.

Step 3: Issue Founder Stock with Vesting

Duration: 1-2 hours · Tool: Carta/Pulley or attorney-prepared documents

Issue restricted common stock to each founder with a vesting schedule.

Standard Founder Vesting Schedule:
──────────────────────────────────────────
Total Vesting Period:     4 years
Cliff:                    1 year (25% vests at 12-month mark)
Post-Cliff Vesting:       Monthly (1/48th per month)

Required Documents:
  1. Board Resolution authorizing stock issuance
  2. Restricted Stock Purchase Agreement (RSPA)
  3. IP Assignment Agreement
  4. 83(b) Election (see Step 4)

Verify: Each founder has a signed RSPA with correct share count, vesting schedule, and purchase price · If failed: Do not proceed with unsigned documents.

Step 4: File 83(b) Elections

Duration: 30 minutes per founder · Tool: IRS Form 15620

Every founder receiving restricted stock MUST file an 83(b) election within 30 days of the stock grant. [src6]

83(b) Election Process:
──────────────────────────────────────────
DEADLINE: 30 calendar days from stock grant date. NO EXCEPTIONS.

Filing steps:
  1. Complete IRS Form 15620 (standardized Nov 2024)
  2. File electronically via IRS.gov OR mail certified
  3. Send copy to your company
  4. Attach copy to personal tax return
  5. Keep proof of filing

Tax impact at $0.0001/share:
  4,250,000 shares × $0.0001 = $425 value
  Tax owed at grant: ~$100-$160 (marginal rate)

WITHOUT 83(b) at $2/share vesting:
  2,125,000 shares × $2.00 = $4,250,000 taxable
  Tax owed: ~$1,500,000+ (ordinary income)

Verify: Proof of filing obtained for each founder. Calendar reminder set. · If failed: If 30-day window missed, consult tax attorney immediately.

Step 5: Create Option Pool and Equity Incentive Plan

Duration: 2-3 hours · Tool: Cap table software + attorney

Establish the employee stock option pool for future hires. [src4]

Option Pool Sizing Guide:
──────────────────────────────────────────
Pre-Seed / Pre-Revenue:    10-15%
Pre-Series A:              15-20%
Post-Series A:             15-20% of post-money cap table

Sizing Calculation (Pre-Series A):
  CTO (if not founder):     1.0-2.0%
  VP Engineering:           0.5-1.5%
  First 5 engineers:        0.25-0.5% each
  Head of Sales/Marketing:  0.5-1.0%
  Advisors (3-4):           0.1-0.25% each
  Total needed:             4-8%
  Buffer (1.5-2x):          ×2
  Recommended pool:          10-15%

Required: 409A Valuation before ANY option grants

Verify: Option pool is reserved (not issued). Board resolution signed. No options granted until 409A obtained. · If failed: Model two scenarios (10% and 20%) to inform pool size decision.

Step 6: Model SAFE/Convertible Note Dilution

Duration: 1-2 hours · Tool: Cap table software or spreadsheet

Model how pre-seed instruments will convert and dilute the cap table. [src3]

Post-Money SAFE Conversion Example:
──────────────────────────────────────────
Starting Cap Table:
  Founder A:     4,250,000 (42.5%)
  Founder B:     4,250,000 (42.5%)
  Option Pool:   1,500,000 (15.0%)
  Total:        10,000,000 (100%)

SAFE: $500K on $5M post-money cap
  Ownership at conversion = $500K / $5M = 10%

Pro Forma (at conversion):
  Founder A:     4,250,000 (38.25%)
  Founder B:     4,250,000 (38.25%)
  Option Pool:   1,500,000 (13.50%)
  SAFE Investor:  1,111,111 (10.00%)
  Total:        11,111,111 (100%)

Verify: Pro forma totals 100%. Model at least 2 scenarios. · If failed: Check pre-money vs. post-money SAFE type.

Step 7: Load Cap Table into Software and Validate

Duration: 1-2 hours · Tool: Carta, Pulley, or validated spreadsheet

Enter all data into your chosen cap table management tool and validate.

Validation Checks:
  ✓ Issued shares ≤ authorized shares
  ✓ All percentages sum to 100%
  ✓ Vesting schedules match signed agreements
  ✓ 83(b) elections filed for all restricted stock holders
  ✓ No options granted without 409A valuation
  ✓ SAFE conversion modeled correctly

Verify: Export summary and have co-founders review. Cross-reference against signed legal documents. · If failed: Legal documents are the source of truth — update software to match.

Output Schema

{
  "output_type": "capitalization_table",
  "format": "spreadsheet or cap table software export",
  "columns": [
    {"name": "shareholder_name", "type": "string", "description": "Legal name of shareholder or Option Pool", "required": true},
    {"name": "share_class", "type": "string", "description": "Common, Preferred, or Option Pool", "required": true},
    {"name": "shares_issued", "type": "number", "description": "Shares actually issued", "required": true},
    {"name": "ownership_percentage", "type": "number", "description": "Fully diluted ownership", "required": true},
    {"name": "purchase_price_per_share", "type": "number", "description": "Price paid per share", "required": true},
    {"name": "vesting_start_date", "type": "date", "description": "Vesting schedule start", "required": false},
    {"name": "eighty_three_b_filed", "type": "boolean", "description": "83(b) election filed", "required": false}
  ],
  "expected_row_count": "3-10",
  "sort_order": "ownership_percentage descending",
  "deduplication_key": "shareholder_name + share_class"
}

Quality Benchmarks

If below minimum: Do not proceed to investor conversations. Incomplete cap table documentation is the most common cause of funding delays and failed due diligence.

Error Handling

Cost Breakdown

Anti-Patterns

Wrong: Skipping vesting on founder shares

Founders who issue fully vested stock create a major liability. If one co-founder leaves after 3 months, they retain their full equity stake while contributing nothing further. Investors universally reject this structure. [src7]

Correct: Standard 4-year vesting with 1-year cliff for ALL founders

Apply vesting to every founder, including the idea originator. If a co-founder has been contributing for 12+ months pre-incorporation, grant credit for time served.

Wrong: Oversizing the option pool to 25-30% at formation

Pre-funding founders who create a 25-30% option pool unnecessarily dilute themselves. You only need enough pool to cover hires until your next funding round. [src4]

Correct: Size option pool to 1.5-2x planned hires through next round

Calculate specific equity grants for planned roles, multiply by 1.5-2x for buffer. A 10-15% pre-seed pool is standard; investors will negotiate pool size at Series A.

Wrong: Using pre-money SAFEs without understanding dilution math

Pre-money SAFEs do not fix investor ownership percentage. Multiple pre-money SAFEs at the same cap interact in complex ways, and founders often discover they have given away more equity than intended. [src3]

Correct: Use post-money SAFEs (YC standard) for predictable dilution

Post-money SAFEs fix each investor's ownership at conversion. A $500K SAFE on a $5M post-money cap always equals 10%.

When This Matters

Use this recipe when a founder or founding team needs to create a capitalization table from scratch — typically at or just after incorporation. It produces a complete, investor-ready cap table with proper legal documentation, vesting schedules, and 83(b) elections. The output is a prerequisite for issuing SAFEs, hiring employees with equity, or beginning investor conversations.