Crafting a Cap Table for Solo Owner-Employees

Even if you’re the sole shareholder and employee of your small business, a simple cap table is your roadmap for tracking equity, capital contributions, and distributions. Maintaining it properly prevents costly mistakes, keeps you audit-ready, and ensures you never accidentally overdraw from your own investment in the company.

Why a Solo-Owner Cap Table Matters

• Offers a snapshot of your ownership stake and basis

• Tracks capital you’ve put in versus profits you’ve taken out

• Helps you model distributions without triggering unexpected taxes

• Keeps you compliant with IRS rules on salary versus distributions

Key Components for One-Person Cap Tables

• Shareholder name: just you

• Total shares issued: typically 100% at founding

• Capital contributions: initial and any follow-ons

• Distributions taken: dates, amounts, and running totals

• Shareholder basis: contributions plus retained earnings minus distributions

Step-by-Step: Building Your Solo Cap Table

1. Record Your Initial Capital Contribution

   • Date of formation and amount you invested in exchange for shares.

2. Issue and Document Shares

   • Even as a sole owner, formally issue yourself shares (e.g., 1,000 common shares).

3. Log Every Additional Contribution

   • If you inject more funds—say to cover a big equipment purchase—note date and amount.

4. Track Distributions Against Your Basis

   • Record each payout you take as a distribution and adjust your basis accordingly.

5. Recalculate Your Basis Regularly

   • Basis = Total contributions + retained earnings — total distributions.

Pitfalls to Watch Out For

Taking Distributions Beyond Your Basis

• Distributions in excess of your basis become taxable capital gains.

Misclassifying Distributions as Salary

• All salaries are subject to payroll taxes; distributions are not. Underpaying salary and over-distributing profits can trigger IRS penalties.

Skipping Updates After Capital Contributions

• If you add funds but don’t adjust your basis, you risk thinking you have more distributable equity than you really do.

Failing to Document Each Transaction Promptly

• Late entries lead to errors, mismatches on tax returns, and audit red flags.

Best Practices for Solo Cap-Table Management

• Update your cap table within 48 hours of any contribution or distribution.

• Use clear labels (e.g., “Contribution - MM/DD/YYYY” or “Distribution - MM/DD/YYYY”).

• Lock historical entries to avoid accidental edits; add new lines for each transaction.

• Save backups or version snapshots monthly to track changes over time.

• Review your cap table with a CPA at least once a year—especially before tax season.

Keeping a clean, up-to-date cap table—even when you’re the only shareholder—sets you up for smoother tax filings, stronger compliance, and total clarity around your business’s finances.

Ready to get started? Let’s set up your first cap table template today.

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