What You Need To Know About Shares
When forming your company limited by shares it must have at least one share, while there is no limit to the maximum number of shares you can issue.
Who Can Be A Shareholder?
Anyone can be a shareholder in your business. As owners of the company they will likely have input into the major decisions you have to make about your business, while the day to day running and responsibilities will be in the hands of your directors.
Generally shares may be given to:
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External investors in your company – remember that unlike a bank loan, where once you’ve paid it back the transaction is complete, when you release shares to an investor the equity is theirs indefinitely.
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Investors who are friends and family – again, equity is theirs for life and it’s important to ensure you are ready to have the input of all of your shareholders in the running of your business.
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Directors or employees of your company – this may be because they have invested in your business or because you’d like to use shares as a motivator.
To find out more on this subject, check out our recent article entitled "What is a shareholder?".
How Much Are Shares Worth?
A share has a nominal value and an actual value.
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Nominal value is the amount your shareholder has paid for the share.
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Actual value is the market value of the share.
What Types Of Shares Are There?
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Generally companies issue ‘ordinary’ shares, while there are also several other types of shares all with different conditions attached to them. These include:
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Ordinary Shares – no special rights or restrictions.
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Preference Shares – offering the shareholder the right to any annual dividends available for distribution before other classes.
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Cumulative Preference Shares – offering the right that if the company cannot pay dividend in any one year it will carry it forward to successive years.
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Redeemable Shares – issued with an agreement that the company will buy back at the option of either the company or the shareholder after a certain period or on a fixed date. If you wish to issue redeemable shares other types of shares must also exist for your company.
How Are Shares Issued?
During your company formation details of shares to be allocated and shareholders and their rights need to be passed to Companies House. This is called a Statement of Capital and Initial Shareholdings and is an agreement from your shareholders to take those shares. You can find out more about your Share Capital and Statements of Capital from Companies House.
If you wish to add a new shareholder for your business or if you wish to give more shares to an existing shareholder you may need to issue more shares. This can be done through Companies House by completing form SH01.