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What is a shareholder?

As part of the application to form a limited company you’ll be asked to:

1. Name at least one shareholder for your company

2. State the number of shares you’d like that shareholder to be allocated

Every limited company has at least one shareholder. However, if you haven’t yet incorporated your limited company, you’re probably still unsure about managing your shares. So don’t fear – to understand what you need to know about shareholders when you form your company, read on.

 

What is a shareholder?

A shareholder is any person or company that owns one or more shares of a limited company. Shares are divided out when the company is incorporated. The person forming the company decides how they are allocated, as well as to whom.

It’s worth noting that shareholders are also sometimes called members. This is an approach often used by cooperatives, which operate a member-driven model. For example, if you become a member of the Co-operative you can have a vote on some of the company’s key decisions.

 

What do shareholders do?

Shareholders have a vested interest in the success of the company.  Their shares will either increase or decrease in value depending on how the business is doing. Since your shareholders own a piece of the business, they usually require a say in running the company. How much of a say they have will depend on how many shares they own.

Some will see this as an opportunity to make money. By taking a stake in a growing company they may hope to see the value of their shares rise and then sell them for a profit. Alternatively, they may receive annual dividends based on the company’s performance.

Others, though, want a stake in a company and the direction is taking. They will be able to vote on certain decisions such as:

  • The appointment of directors
  • Deciding how much power to grant directors
  • Setting director salaries
  • Authorising an allotment or portion of shares to be given out

They may also have to contribute to a company’s debts up to the limit of their own liability.

They do not take an active role in the running of the company – that will be down to the directors –but a shareholder can also be a director. So, if you start a company and want to do it on your own, you can take on both roles.

 

What is the difference between a shareholder and a stakeholder?

While a shareholder is strictly an owner of company shares, a stakeholder is a more broad term used to describe anyone who has any other “stake” or interest in the business. Directors, secretaries and any other employees would be stakeholders, as would suppliers and even customers.

 

Who can be a shareholder?

Shareholders can be individuals or groups of individuals if you want to issue your shares to a whole organisation. As an example, pension funds often buy shares in top performing companies like BP to boost the returns of their portfolios. Investors will also take a share – these might be supporters who decide to inject capital into a small startup in return for a share of the company. If the company does well, they will do well.

When forming a limited company you will have to nominate at least one person to be a shareholder and one person to be a director. As mentioned, these can be one and the same person if you’re starting out on your own and want to be the director as well as the majority shareholder.

Whether you have one shareholder or many, you will have to keep a register of all shareholders. This lists every person who owns a share, no matter how many. There are rules around who should and should not be registered as a shareholder, though. For example, if a pension fund holds shares, the trustee of the fund will normally be registered as the shareholder.

There are many things a shareholder can offer a limited company. The first, obviously, is operating capital, but that’s not to mention the benefit of their expertise and experience. For example, when startups take on capital, their early investors often adopt a more important role as directors and play an important part in moving the company forward.

 

How to issue shares

Shares will generally be issued upon the formation of a company. There are no hard and fast rules for how many shares you should issue, but be aware that you can use several types of shares.

Understanding how to issue shares of different kinds will be important when you come to this section in the application, so here’s an overview:

Ordinary shares: These include full rights to dividends, voting at meetings and a share of excess capital if the company should fold.

Preference shares: These have full rights to dividends but no voting rights.

Alphabet shares: These are most commonly issued to employees as a reward.

For more information on how to issue shares, check out our Complete Guide to Shares.

 

Now you know what a shareholder is, the process of forming a limited company and issuing shares couldn’t be simpler – just complete our quick online application. Start your company formation over on the package comparison page, or continue browsing the help centre for more handy advice on becoming a business owner.

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