When people form a company, they decide whether to limit the members’ liability by shares. As every share counts as a vote in the company, the more shares you have the more votes you have.

 

On registration of a company limited by shares at Companies House, the shareholders must agree to take some, or all, of the shares. The statement of capital and initial shareholdings must show the names and addresses of the people who have agreed to take shares and the number of shares each will take. These people are called the subscribers.

 

Issued capital

Issued capital is the value of the shares issued to shareholders. This means the nominal value of the shares rather than their actual value.

 

A company may increase its issued capital by allotting more shares.

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A private company may normally only issue shares to its members, to staff and their families, to debenture holders, or to others by private arrangement;

A PLC may offer shares to the general public in a prospectus or by listing particulars.

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Types of shares

A company may have as many different types of shares as it wishes, all with different conditions attached to them. 

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Typically, share types fall into the following categories:

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Ordinary:

These are the ordinary shares of the company with no special rights or restrictions. The company may divide them into classes of different values;

 

Preference:

These shares carry a right that the company should pay any annual dividends available for distribution on these shares before other classes;

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Cumulative preference:

These shares normally carry a right that, if the company cannot pay the dividend in one year, it will carry it forward to successive years;

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Redeemable:

These shares are issued by the company with an agreement that it will buy them back at the option of either the company or the shareholder after a certain period, or on a fixed date. A company cannot have only redeemable shares.

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Authorised minimum

To form a new ltd company you need to issue at least one share.

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The nominal value of the PLC company’s allotted share capital must be at least £50,000

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Payment for shares

Please keep in mind that the shareholders have to pay the company for the shares they receive. If you receive one £1 share then you owe the company £1.

 

Payment for shares in a private company can be in a variety of ways including cash, goods, services, property, good will, know-how, or even shares in another company.

 

Generally, people can pay for shares in a private company:

    wholly for cash;
    partly for cash and partly for a non-cash payment; or
    wholly for a non-cash payment.

 

Payment for shares in a public company must, in most instances, be for cash.

 

Shareholders

The shareholders of a company are the owners. Also referred to as members or subscribers.

 

The shareholders appoint the directors to run the company on their behalf. A shareholder does not have to be involved in the day to day running of the company. For new small companies the shareholders are often also the directors but this is not a requirement.

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There are no restrictions on who can be a shareholder of a UK company, you can be based overseas or the shares can be held by another company if desired.

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The primary benefit of being a shareholder is that you can be paid dividends from the company’s profits.

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