Information about shares

When forming your private company you’ll need to decide whether directors’ liability is limited by shares. This means that if your business runs into trouble the amount that shareholders are liable for is limited to the value of the shares that they hold. It also means any profits can either be invested back into the company or paid to shareholders in the form of dividends.

What You Need To Know About Shares

When forming your company limited by shares it must have at least one share. 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 major decisions about your business. However, the day to day running and responsibilities will be in the hands of your directors.

Generally, shares may be given to:

  • External investors in your company – unlike a bank loan (once you’ve paid it back the transaction is complete), when you release shares to an investor the equity is theirs indefinitely.
  • 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.
  • 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.

  • The nominal value is the amount your shareholder has paid for the share.
  • The actual value is the market value of the share.

 

What Types Of Shares Are There?

Generally, companies issue ‘ordinary’ shares. However, there are also several other types of shares with different conditions. These include:

  • Ordinary Shares – no special rights or restrictions.
  • Preference Shares – offering the shareholder the right to any annual dividends available for distribution before other classes.
  • Cumulative Preference Shares – dividends rollover to successive years if the company cannot pay in any one year
  • Redeemable Shares – issued with a buy back option 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.

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