How to Manage Your Cap Table During SEIS/EIS Rounds

Why Cap Table Management Matters During SEIS/EIS Rounds

When you raise capital under SEIS or EIS, your investors are taking on risk in exchange for generous tax reliefs. A clear and accurate cap table is proof that they are actually investing in what you promised. It matters because:

• Investor confidence – Angels and funds rely on the cap table to understand how their stake fits into the wider ownership structure. A messy or inconsistent cap table signals a lack of discipline and can deter investors. Sprintlaw notes that poor documentation and failure to update the cap table are among the most common legal mistakes for startups.
  
  
• Eligibility for SEIS/EIS reliefs – HMRC requires that SEIS/EIS shares are fully paid ordinary shares with no redemption rights and no preferential rights to assets or dividends. If the cap table reveals preference shares or share classes with special rights, the entire round could be disqualified. HMRC also checks that SEIS shares precede EIS shares and are issued at least one day earlier.
• Regulatory compliance – You must file Form SH01 (Return of Allotment of Shares) to Companies House within one month of allotting new shares and issue share certificates to investors within two months. The cap table must reflect these filings exactly. Failure to comply can lead to penalties and invalidation of tax relief.

Common problems: Founders often treat the cap table as a “back‑of‑the‑napkin” calculation and only update it when raising capital. This can lead to issues like misaligned share counts, overlooked share classes, missing SH01 filings or forgotten employee options. A 2025 article by Rapid Formations warns that directors must check the articles of association for pre‑emption rights before issuing shares and that failing to file SH01 within one month is a breach. Similarly, share certificates must be issued within two months, and the register of members, the register of allotments and the People with Significant Control (PSC) register must all be updated. Inaccurate or incomplete updates can invalidate SEIS/EIS reliefs.

Why Investors and HMRC Scrutinise the Cap Table

Accuracy of Share Ownership and Classes

Investors want assurance that they hold ordinary shares that satisfy SEIS/EIS rules. HMRC’s guidance states that SEIS shares must be ordinary shares that are fully paid, carry no preferential rights and must be held for at least three years. EIS shares follow similar rules; they must be fully paid ordinary shares with no redemption rights and limited preferential dividends. The cap table must clearly identify share classes and confirm that there are no preference or convertible shares that could jeopardise eligibility.

Proper Issuance and Record Keeping

Issuing shares is not just a matter of updating a spreadsheet. You must obtain board approval, prepare documentation (including subscription agreements and share certificates), file Form SH01 within one month of the allotment, update the register of members and share capital, and issue share certificates within two months. The cap table must reflect these steps precisely. Under the Companies Act 2006, all private companies limited by shares must issue share certificates within two months of the shares being issued or transferred and keep copies for inspection. Digital certificates are permissible so long as they include required details such as company name, shareholder name and share class.

Alignment with SEIS/EIS Requirements

HMRC expects companies to spend SEIS funds within three years and EIS funds within two years on qualifying business activities. They also require that SEIS shares are issued before EIS shares and that EIS investments occur at least one day later. The cap table must reflect this sequencing. Undo Capital’s own guidance emphasises that blended SEIS/EIS rounds must respect this order and that filing the SEIS1 compliance statement must precede filing the EIS1.

What Investors and HMRC Expect from a Compliant Cap Table

A compliant cap table is the cornerstone of SEIS/EIS fundraising. Investors and HMRC expect:

1. Accurate Share Ownership and Classes

• Start with the articles of association: Before issuing shares, check the company’s articles and any shareholder agreements for restrictions on share issues and pre‑emption rights. Directors should verify whether the articles permit new share issues and whether existing shareholders have pre‑emption rights. If pre‑emption rights exist, offer new shares to existing shareholders first or obtain a special resolution to disapply those rights.
• Use only ordinary shares: SEIS and EIS require that shares be ordinary and fully paid. HMRC prohibits redeemable shares or shares that carry preferential rights to dividends or assets. Dividends may be limited to a normal commercial rate but cannot accumulate. For EIS, similar restrictions apply.
• Document share classes clearly: Each class of shares (e.g., SEIS shares, EIS shares, ordinary shares, options) should be defined with rights and restrictions. The cap table should record each shareholder’s percentage ownership, the nominal value of shares, and any options outstanding. Investors will ask to see the cap table before investing, and HMRC may request it when reviewing compliance statements.

2. Proper Issuance and Record Keeping

• Board approval: Prior to allotting shares, the board must approve the issuance and the use of funds. Minutes of the board meeting should record the resolutions.
• Issuing share certificates: After allotment, directors must issue share certificates to new shareholders within two months. The certificates should include the company name, registration number, shareholder’s name, number and class of shares, nominal value and issue date. Keep copies of each certificate on file.
• Filing SH01: Companies must deliver Form SH01 to Companies House within one month of the allotment, listing details such as the number of shares, class, nominal value and amount paid. Failing to file SH01 on time can incur penalties and jeopardise investor reliefs.
• Updating registers: You must update the register of members and the register of allotments within two months of allotment. If the new shares change the People with Significant Control (PSC) situation, file the appropriate PSC form within 14 days. As of 2024–25, under the Economic Crime and Corporate Transparency Act, companies must maintain accurate registers and confirm that activities are lawful.

3. Alignment with SEIS/EIS Requirements

• Sequencing of SEIS and EIS shares: HMRC requires that SEIS shares be issued before EIS shares, and there must be at least one day between issuance. You cannot issue both classes on the same day or flip between them. The SEIS1 compliance statement must be filed and authorised before an EIS1 can be submitted.
• Spend rules and risk‑to‑capital: SEIS funds must be spent within three years on qualifying activities such as carrying on or preparing to carry on a trade. EIS funds must be spent within two years. HMRC assesses whether the investment carries a significant risk to capital; companies should demonstrate that funds will be used for growth and not for low‑risk activities.

How Share Issuance Works Under SEIS/EIS

Managing share issuance is one of the most technical parts of SEIS/EIS compliance. The steps below outline a typical process; always consult your legal advisers for your specific case.

Step 1 – Board Approval and Documentation

Before any shares are issued, convene a board meeting to approve the share allotment. Document the resolution, the class of shares to be issued (SEIS or EIS), the number and nominal value, the subscription price and any rights attaching to the shares. Check the articles of association for any restrictions or authorised capital limits. Some companies need shareholder approval to disapply pre‑emption rights. Document everything: board minutes form part of the evidence for HMRC.

Step 2 – Issuing Ordinary Shares

Once the board has approved the allotment, issue ordinary shares to investors. Under SEIS and EIS, shares must be ordinary shares with no redemption rights and no preferential rights to dividends or assets. Shares must be fully paid in cash at the time of issue and cannot be issued to connected persons beyond 30% ownership. If you are running a blended round, issue SEIS shares first for up to £250k with per‑investor caps of £200k per tax year; then, after at least a day, issue the EIS shares for the remaining amount.

Step 3 – Filing SH01 and Updating Records

After issuing shares, file Form SH01 within one month. The form requires details of the allotment: number of shares, class, nominal value, amount paid and non‑cash consideration (if any). The statement of capital included in SH01 must show the total issued share capital after the allotment. If directors pass resolutions to allot shares or disapply pre‑emption rights, file those resolutions with Companies House within 15 days.

Next, update the company’s register of members and register of allotments within two months of the allotment. Issue share certificates to new shareholders within two months, and keep copies. If the allotment changes the PSC position, file the relevant PSC form within 14 days. Finally, update your cap table to reflect the new shareholdings and confirm that the SEIS/EIS sequencing is correct.

Common Cap Table Mistakes During SEIS/EIS Rounds

Even experienced founders can trip up on the technicalities of SEIS/EIS compliance. Here are some common mistakes and how to avoid them.

Mixing Share Classes (Preference Shares, Non‑ordinary Shares)

SEIS and EIS require that only ordinary shares be issued. Issuing preference shares or convertible shares to investors breaches the rules. Keep share classes simple during SEIS/EIS rounds; if you need preference shares later, issue them after the SEIS/EIS window has closed.

Missing or Delayed SH01 Filings

Failing to file SH01 within one month is one of the most frequent errors. Directors must deliver SH01 within one month of allotment. If you miss the deadline, file as soon as possible and seek professional advice to minimise penalties.

Inconsistent Records Between Legal Documents and the Cap Table

Your cap table should be backed by legal documents, subscription agreements, share certificates, board resolutions and register entries. A cap table without supporting documents is unreliable. Keep all documentation synchronised. If legal documents and the cap table diverge, update whichever record is incorrect and ensure that filings at Companies House reflect the correct numbers.

Failing to Update Investor Share Certificates

Share certificates are proof of ownership. Companies must issue share certificates within two months and keep copies. When companies forget to issue certificates or fail to update them after transfers, investors may be unable to claim relief or prove ownership. Use digital certificates and automate the issuance process to avoid omissions.

Overlooking Employee Options and Dilution

Employee option pools are common in startups. However, founders sometimes forget to reflect outstanding options in the cap table, resulting in underestimating dilution. Sprintlaw notes that ignoring fully diluted ownership is a common error. When modelling SEIS/EIS rounds, include outstanding options so investors understand the true dilution effect. Tools like Undo Capital can calculate fully diluted cap tables automatically.

Automation and Tools: Simplifying SEIS/EIS Cap Table Management

Keeping track of share classes, compliance deadlines, and investor communications manually is error‑prone. Automation tools can remove much of the administrative burden, reduce errors and ensure compliance.

Automated Share Issuance

Platforms like Undo Capital enable you to automate the issuance of SEIS and EIS shares. You enter investor details and funding amounts, and the system generates subscription agreements, board resolutions and share certificates. It guides you through the correct sequence (SEIS first, EIS second) and ensures that shares are issued at least one day apart. The platform then automatically produces the Form SH01 with the correct statement of capital and sends reminders when filings are due.

Real‑time Cap Table Updates

Once shares are issued, the cap table is updated in real time. Fully diluted modelling (including option pools, convertibles and warrants) allows you to see the impact of new investors. Undo Capital’s dashboard provides a clear view of who owns what, how much of the option pool remains, and how future rounds might affect existing shareholders. This transparency encourages investor confidence and simplifies due diligence.

Integrated SEIS/EIS Documentation

Beyond share issuance, automation tools manage the entire SEIS/EIS lifecycle. They produce compliance statements (SEIS1/EIS1), track use of funds and prepare investor certificates (SEIS3/EIS3). They also remind you of deadlines and ensure you file within the prescribed windows. This integrated approach minimises the risk of missing a step and helps maintain eligibility.

SEIS/EIS Compliance and Reporting Obligations

Your responsibilities don’t end once the round closes. Ongoing compliance is crucial to preserving investor reliefs.

Filing Compliance Statements

After issuing SEIS shares, you must submit a SEIS1 compliance statement. HMRC will issue SEIS3 certificates to investors once they have spent at least 70% of the funds and four months have passed since trading began. For EIS, submit an EIS1 after the company has been trading for four months or after spending the funds on qualifying activities. HMRC will then provide EIS2 and EIS3 certificates. Send these certificates to investors promptly so they can claim relief.

Maintaining Investor and Shareholder Records

Keep detailed records of how funds are spent, maintain up‑to‑date registers of members, share certificates and PSC information, and report any changes (such as share transfers or cessation of trade) to HMRC within 60 days. Companies should regularly review their business activities to ensure they remain qualifying, monitor employee numbers and asset thresholds, and file compliance statements on time. Failing to do so can lead to the withdrawal of reliefs and penalties.

Extension of EIS and SEIS Rules into the Future

In September 2024, HM Treasury announced that the Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT) schemes would be extended by ten years to 5 April 2035. This extension provides long‑term certainty for investors and founders. The SEIS scheme, which has no sunset clause, continues without an end date. For startups, this means the SEIS/EIS path remains viable throughout the coming decade. Future changes to company law under the Economic Crime and Corporate Transparency Act will make Companies House a more active regulator; expect stricter identity verification and new filing requirements over the next few years.