Guide

Cap tables and equity

Fully diluted ownership

Authorized vs issued vs fully diluted — and why "I own 1%" is meaningless until you name the denominator.

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A cap table is the ledger of who owns what: every shareholder, every share class, every option and warrant, and the percentages that result. Those percentages only mean something relative to a denominator. The denominator that offer letters and investor targets use is almost always fully diluted shares.

Tip

When someone says "I own 1%," ask: 1% of what? Outstanding only, or fully diluted including the unissued pool and convertibles?

The big idea

Think of a pizza that has slices already served, slices reserved for later, and IOUs for extra pizzas that have not been baked. Fully diluted counts all of them. Counting only the slices on the table makes you look richer than you are. The analogy breaks on voting: votes usually attach to issued shares, not to unissued options.

TermMeaning
AuthorizedMaximum shares the certificate of incorporation allows. Raised by charter amendment.
Issued / outstandingShares actually issued to people. Voting and dividends usually attach here.
Fully diluted (FD)Outstanding plus everything that could become shares: unissued option pool, outstanding options/RSUs, warrants, converting SAFEs and notes (modeled). This is the ownership % denominator.

Preferred and common are different classes. Preferred (what VCs buy in priced rounds) usually has liquidation preference, anti-dilution and protective votes. Common is what founders and employees hold. List each class separately, then show both as-issued and fully diluted.

A useful table has holder, class, shares, % of FD, and notes (vesting, SAFE terms, board seat). Price, cost basis and the preference stack come later. Ownership math starts with shares and FD.

Walking through it

At formation a company authorizes 10,000,000 common. Founders take 9,000,000. The option pool reserves 1,000,000, still unissued.

Outstanding     = 9,000,000
Fully diluted   = 10,000,000
Founder A at 4,500,000 = 45% of FD, 50% of outstanding

Quote A's ownership as 45%. The 50% outstanding figure ignores the pool everyone has already agreed to count. An engineer offered 40,000 options is 0.4% of FD (40,000 / 10,000,000), not 0.44% of outstanding.

Common mistakes

  • Quoting outstanding-only % in an offer. Future rounds and the unissued pool are already in the story investors use.
  • Hiding convertibles as one "SAFEs" blob. Model each instrument's amount, cap, discount and MFN.
  • Treating authorized as issued. Authorized is a ceiling, not ownership.

Check yourself

Founders hold 9M shares. The pool reserves 1M. What is one founder's 4.5M as a fully diluted percent?

45% — 4.5M / 10M, not 50% of the 9M outstanding.

Why do investor ownership targets use fully diluted?

Because options, the unissued pool and convertibles will become shares. Outstanding-only percentages lie.

Key takeaways

  • Ownership is shares ÷ fully diluted shares.
  • Authorized is a ceiling; outstanding is issued; FD adds everything that can become shares.
  • Always name the denominator before you trust a percent.

Further learning

Next, how dilution works when the company issues new shares.

Cap tables and dilution

The ownership ledger from founding through Series B — start here for the map, then walk the numbers.

How dilution works

Your share count stays put; the denominator grows. Each round multiplies old ownership by (1 minus the new-money percent).

Option pools

Reserved equity for hiring — size it from a plan, watch the pre-money shuffle, and refresh before the tank is empty.