Share structure and cap tables for startup founders

This guide explains how to set up a startup's shares and keep the records in order, from the shares issued at incorporation to the cap table after two funding rounds.
By Buzz Accounting · Updated 16 September 2026

What share structure means

A company's share structure is how many shares it has issued, what rights each class of share carries and who holds them. The cap table, short for capitalisation table, is the record of that structure, usually a spreadsheet showing every shareholder, every option holder and every agreement that can turn into shares.

Founders set the structure when they incorporate and then build on it each time a co-founder, adviser, employee or investor joins. Changes are easier to make before the shares have much value and before investors hold any. Some steps also carry short legal and tax deadlines, such as the 14 days to make a tax election on shares that carry vesting and the one month to report an allotment to Companies House.

Investors, HMRC and Companies House all rely on the same records, so the cap table has to agree with the register of members and with what Companies House holds. This guide covers each part of the structure in the order founders usually meet it, and ends with a worked example of dilution over two funding rounds.

What this guide covers

Nominal value, subdividing a single £1 share and allotting founder shares
Share classes, vesting, leaver terms and section 431 elections
Option pools, EMI, pre-emption rights and the statutory registers
A worked example of dilution across two funding rounds

Ordinary shares and nominal value

Ordinary shares are a company's standard shares, and the articles of association set out the rights they carry, such as votes, dividends and a share of what is left on a winding up. Every share must have a fixed nominal value, in any currency (Companies Act 2006, section 542). The nominal value is the face value recorded for each share, such as £1 or £0.0001, and has no connection with what the share is worth. A company cannot allot shares for less than their nominal value, and anything paid above it is recorded as share premium. A low nominal value lets founders pay very little at the start while investors pay a much higher price later.

How many shares to incorporate with

A company limited by shares needs at least one shareholder and a statement of capital when it is registered. A single £1 share is valid, but it cannot be split between people without further steps. Incorporating with more shares at a low nominal value avoids this. For example, 100,000 shares of £0.00001 each have a total nominal value of £1, and each share is 0.001% of the company. Choose enough shares that every stake you expect to give, such as 20% to a co-founder or 0.5% to an adviser, is a whole number of shares.

Subdividing a single £1 share

A company can subdivide its shares under section 618 of the Companies Act 2006 once the shareholders pass a resolution authorising it. An ordinary resolution is enough unless the articles require more, and the articles can restrict or exclude the power. The company then has one month to notify Companies House on form SH02, with a statement of capital. Subdividing one £1 share into 100,000 shares of £0.00001 each leaves the founder owning 100% and the total nominal value at £1.

Allotting founder shares

Allotting shares means the company creates new shares and issues them. In a private company with one class of shares, the directors can allot shares unless the articles prohibit it (section 550). Otherwise they need authority from the articles or an ordinary resolution stating the maximum number of shares and an expiry date no more than five years away (section 551). Existing shareholders' statutory pre-emption rights, covered below, usually have to be waived or disapplied first, and each new shareholder pays at least the nominal value. After an allotment the company must:

file a return of allotment on form SH01 within one month
enter the shareholder in the register of members as soon as practicable, and within two months
have share certificates ready within two months
report any change in people with significant control, usually anyone with more than 25% of the shares or votes, within 14 days

For example, a founder with 100,000 shares agrees that a co-founder will hold 20%. The company allots 25,000 shares to the co-founder at nominal value, for 25,000 × £0.00001 = £0.25. The founder then holds 100,000 of the 125,000 shares (80%) and the co-founder holds 25,000 (20%). If shares are worth more than the co-founder pays, the difference can be taxed as employment income.

Share classes

A company can have several classes of share with different rights set out in the articles, such as non-voting shares, preference shares paid out before ordinary shares on a sale or winding up, or redeemable shares. The statement of capital filed with each SH01 includes the rights of each class. A single class of ordinary shares keeps an early-stage company simple, so add a class when a round or another specific need calls for it.

The share rights SEIS and EIS allow

SEIS and EIS relief is only available on ordinary shares that, for the three-year qualifying period, carry no preferential right to assets on a winding up and no right to be redeemed. A preferential dividend is allowed only if nobody can vary its amount or dates and unpaid dividends do not accumulate (VCM33020). HMRC's guidance calls these full risk ordinary shares. A preference share that repays investors first on a winding up therefore cannot be an SEIS or EIS share. If some investors are claiming the reliefs and others want preference rights, issue a different class to each, and check any change to the articles or shareholders' agreement during the three years. Our SEIS and EIS page explains the scheme conditions.

Vesting and leaver provisions

Founder vesting means a founder earns their shares over time. The shares are issued at the start, and a founder who leaves before the vesting period ends must sell some or all of them back at a price set in the articles or shareholders' agreement. For example, shares might vest over four years, with none vesting until the end of the first year.

Leaver provisions often distinguish a good leaver, such as someone leaving through ill health, from a bad leaver, such as someone dismissed for misconduct. A good leaver might keep vested shares and sell unvested shares at market value, while a bad leaver might sell everything at the lower of cost and market value. A company buying back its own shares must follow the company law procedure, and a buy-back while SEIS or EIS investors are inside their three-year period can reduce their relief. Decide who will buy a leaver's shares when you write the provisions.

Section 431 elections

Shares a company makes available to its directors and employees are treated for tax as acquired because of their employment. HMRC's manual says this rule was introduced to stop directors treating their shares as founders' shares outside the employment tax rules (ERSM20210). Shares that must be sold back below market value if the holder leaves are restricted securities.

Without an election, there is usually no income tax on acquiring restricted shares if the restriction ends within five years. Instead, when the restriction is lifted or varied, or the shares are sold while restricted, part of their value at that point can be taxed as employment income.

A section 431 election, made jointly by the company and the founder, treats the shares as unrestricted when acquired. If the founder paid the full unrestricted market value, there is no tax at that point and later growth falls outside these rules. If they paid less, tax is due on the difference at acquisition. The election must be in a form approved by HMRC, cannot be revoked and cannot be made more than 14 days after the acquisition (Income Tax (Earnings and Pensions) Act 2003, section 431). There is no provision for a late election, so sign one for each acquisition of restricted shares and keep it with the company's records.

HMRC's guidance says these rules apply only to shares that are restricted when acquired, so restrictions added later to shares already owned outright fall outside them (ERSM30300). Take advice on your own facts before relying on that.

Option pools and EMI

An option pool is a number of shares set aside for future employee options. No shares are issued until an option is exercised, but the pool appears in the fully diluted cap table, which counts every option and convertible agreement as if it were already shares. Investors often ask for a pool to be created or enlarged before a priced round, and the term sheet says whether it counts in the pre-money share number.

Enterprise Management Incentives (EMI) are tax-advantaged share options. From 6 April 2026 a company can grant them if it has gross assets of £120 million or less, fewer than 500 full-time equivalent employees and no more than £6 million of unexercised EMI options. A Northern Ireland company trading in goods or electricity keeps the older, lower limits. Each employee can hold options over shares worth up to £250,000 in any three years and must work at least 25 hours a week, or 75% of their working time, for the company. There is no income tax or National Insurance on exercise if the exercise price is at least the market value at grant and the option is exercised within the period in the agreement, which can be up to 15 years.

Each grant must be notified to HMRC by 6 July after the end of the tax year of grant, and a return or nil return filed by 6 July every year. An EMI valuation agreed with HMRC is valid for 90 days. Our EMI share options page covers set-up at £2,950 + VAT, including the agreed valuation and notification, and the annual return at £295 + VAT a year.

Keeping a cap table

Keep one cap table and update it on the day anything changes. For each holding, record these details.

Holder, share class and number of shares
Date acquired, price paid and nominal value
Vesting terms and the date of any section 431 election
SEIS or EIS status and certificate references
Options, with grant date, number, exercise price, vesting and HMRC notification date
Advance subscription agreements and loan notes, with their conversion terms

Show totals in issue and fully diluted, and reconcile them with the register of members, the statements of capital on each SH01 and SH02 and the latest confirmation statement.

Statutory registers and what Companies House holds

The company must keep a register of members at its registered office or a single alternative inspection location, available for the public to view. It records each member's name and address, when they became and stopped being a member, the shares held by class and the amount paid. Since 26 January 2026 this register can no longer be kept at Companies House. Since 18 November 2025 companies no longer have to keep their own registers of directors, directors' residential addresses, secretaries or people with significant control, and that information is held and kept up to date at Companies House (changes to company registers).

Companies House holds these records.

Statement of capital, updated by each SH01 and SH02 within one month
Articles of association, with new articles and special resolutions filed within 15 days
People with significant control, with changes reported within 14 days
Directors, each of whom must verify their identity
Confirmation statement, filed at least every 12 months for £50 online, which can update shareholder details and the statement of capital

Pre-emption rights

Under section 561 of the Companies Act 2006, a company allotting new ordinary shares for cash, or rights to subscribe for them, must first offer them to existing ordinary shareholders in proportion to their holdings, on the same or better terms, for at least 14 days. The right does not apply to non-cash issues or employee share schemes. A private company can exclude it in its articles, or the directors can be given power by the articles or a special resolution to allot as if it did not apply. The model articles for private companies do not exclude it, so shareholders usually waive or disapply it before a round.

Pre-emption on transfers, which gives shareholders first refusal when another shareholder sells, exists only if the articles or a shareholders' agreement provide for it. Investors often ask for pre-emption on new issues so they can keep their percentage in later rounds.

Worked example of dilution across two rounds

The figures in this example are illustrative and continue from the founders above. Founder A holds 100,000 shares and founder B holds 25,000.

Seed round

The company raises £250,000 from angel investors at a pre-money valuation of £1,000,000.

Price per share is £1,000,000 ÷ 125,000 = £8.00.
New shares issued are £250,000 ÷ £8.00 = 31,250.
Shares in issue after the round are 125,000 + 31,250 = 156,250.
Post-money valuation is 156,250 × £8.00 = £1,250,000.

Series A round

Two years later the company raises £1,000,000 at a pre-money valuation of £3,000,000. The new investors require an option pool of 31,250 shares to be counted in the pre-money share number.

Fully diluted shares before the new money are 156,250 + 31,250 = 187,500.
Price per share is £3,000,000 ÷ 187,500 = £16.00.
New shares issued are £1,000,000 ÷ £16.00 = 62,500.
Fully diluted shares after the round are 187,500 + 62,500 = 250,000.
Post-money valuation is 250,000 × £16.00 = £4,000,000.

Holder	Before seed	After seed	After Series A, fully diluted
Founder A	100,000 (80%)	100,000 (64%)	100,000 (40%)
Founder B	25,000 (20%)	25,000 (16%)	25,000 (10%)
Seed investors	None	31,250 (20%)	31,250 (12.5%)
Option pool	None	None	31,250 (12.5%)
Series A investors	None	None	62,500 (25%)
Total	125,000	156,250	250,000

Founder A's percentage fell from 80% to 40%. At the seed price the holding was worth 100,000 × £8.00 = £800,000, and at the Series A price it is worth 100,000 × £16.00 = £1,600,000. The seed investors paid £250,000 for shares worth 31,250 × £16.00 = £500,000 at the Series A price.

Because the option pool was counted before the new money, its cost fell entirely on the existing holders. Without the pool, the same £3,000,000 pre-money valuation would have priced each share at £3,000,000 ÷ 156,250 = £19.20. The £1,000,000 would have bought £1,000,000 ÷ £19.20 = 52,083 shares (rounded down), and founder A would have held 100,000 ÷ 208,333 = 48.0% after the round.

How we help

For £750 + VAT we subdivide the shares you incorporated with, allot shares between founders, update the registers and prepare the section 431 elections for signing inside the 14-day window. Each later share issue is £195 + VAT, covering the allotment, board minutes, registers and the Companies House filing. For clients on our monthly accounting service we keep the cap table, the register of members and the confirmation statement in agreement. Our share structure page has the details. A solicitor drafts articles and shareholders' agreements.

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Common questions

How many shares should a startup have at incorporation?

A startup should have enough shares that every stake it expects to give is a whole number of shares, which means thousands or more at a low nominal value. A single £1 share is valid but cannot be split between people without subdividing it first. For example, 100,000 shares of £0.00001 each have a total nominal value of £1 and let you give a co-founder 20% or an adviser 0.5% in whole shares. The number of shares has no effect on what the company is worth.

What is a section 431 election and when is the deadline?

A section 431 election is a joint election by a company and a director or employee that treats restricted shares, such as founder shares subject to vesting, as if they had no restrictions when they were acquired. It must be made in a form approved by HMRC no more than 14 days after the shares are acquired, and it cannot be made late or revoked. If the holder paid the full unrestricted value, there is no tax at that point, and later growth stays outside the employment income rules for restricted shares.

Do we need different share classes for investors?

A first round can use ordinary shares for everyone, and SEIS and EIS investors need ordinary shares that meet the scheme conditions. Their shares must carry no preferential right to assets on a winding up and no right to be redeemed during the three-year period, and any preferential dividend must be fixed and must not roll up if unpaid. A separate class becomes useful when some investors want rights such as a liquidation preference, which SEIS and EIS shares cannot carry, or when shares need different voting rights.

What does Companies House need after we issue new shares?

Companies House needs a return of allotment on form SH01, with a statement of capital, within one month of the allotment. If the allotment changes who has significant control, for example someone now holding more than 25% of the shares or votes, report it within 14 days of confirming the change, and a new person with significant control must verify their identity. Any special resolution or new articles go to Companies House within 15 days. The register of members stays with the company and must be updated within two months.

What is the difference between shares in issue and fully diluted shares?

Shares in issue are the shares the company has actually allotted, while fully diluted shares also count every share that could be issued under options, an option pool, advance subscription agreements and convertible loan notes. Investors price a round on a share count set out in the term sheet, which may be fully diluted and may include a new option pool. The difference matters because a pool counted before the new money reduces the percentage held by the founders and leaves the percentage for the new investors unchanged.

Do existing shareholders have to be offered new shares first?

Yes, unless the right has been excluded or disapplied, section 561 of the Companies Act 2006 requires new ordinary shares issued for cash to be offered first to existing ordinary shareholders in proportion to their holdings, with the offer open for at least 14 days. A private company can exclude the right in its articles, or the directors can be given power by the articles or a special resolution to allot as if it did not apply. The right does not cover shares issued for non-cash consideration or under an employee share scheme.