When a business is set up as a Limited Company, it must offer shares to all shareholders. A share is simply a portion of the company that is owned by the shareholder. For example, if one person owns 1 share, they own 100% of the Limited Company. If two people own a share, they each own 50% and so on.
When issuing shares when setting up a limited company, each share provides the shareholder the two things. Firstly, the right to access a certain percentage of any profits the business makes, and secondly, issues the shareholder with one vote when making important business decisions.
Owning more shares therefore results in higher profits received, more voting power and more control over the direction of the business. This is often why shares are typically split evenly between shareholders.
How many shares can a Limited Company issue?
This is a common question for business owners when incorporating their businesses. Many want to keep the shareholder allowance fair so that initial business decisions have equal contribution and so that the business direction is not being slanted.
When first incorporating a business with Companies House, one singular share must be issued at the nominal value of £1.
After this incorporation procedure, there is no limit to the amount of shares that a company can issue, though provisions of authorised share capital are stated in the articles of association. This acts as a voluntary clause that allows shareholders to then limit the total amount of shares issued by the company should they wish to do so.
Are there different types of shares?
Yes, the term ‘share classes’ refers to different types of shares. Each type will be assigned its own conditions and rights, and these should be outlined in the articles of association. Whilst there are four main types of shares, ordinary shares are the shares most commonly issued when a business is incorporated.
However some companies may require shares of different types. We’ve listed the main types below:
- Ordinary Shares: Ordinary shares give shareholders equal voting rights, entitlement to receive profits the business makes and access to capital rights.
- Preference Shares: These types of shares offer a right to receive dividend payments from any company profits accrued. The dividend amount will be calculated as a percentage of each share’s nominal value. Preference shares are non-voting shares, and should a company close, they offer no access to surplus capital beyond the dividend amount.
- Non Voting Shares: These types of shares are limited in that whilst they provide rights to dividend payments, they do not provide the right to vote on company decisions. Therefore they’re predominantly issued to employees as they provide tax-saving benefits for both the business, and its employees. Family members of the shareholders are also commonly issued with non voting shares.
- Redeemable Shares: These shares are issued with a prefixed agreement that the shares will either be purchased back by the company after a certain amount of time has passed, or at the shareholder or company’s instigation. Redeemable shares are another type of share issued to employees, as they are commonly issued with a proviso that they will be redeemed should the employee leave the company.
What happens if I am the singular shareholder?
Companies who are owned by one shareholder – therefore, one person owning 100% of the business – are generally recommended to issue an even number of shares when the business is incorporated.
This is primarily because should the business grow, it could become exceedingly difficult to bring in outside investors as it is almost impossible to break up one share that equals 100% of the company.
Issuing an even number of shares – even if they are not initially assigned – also gives businesses the option to transfer shares to individuals in the event of needing to raise capital.
What is the recommended number of shares?
There is no guidance that states the official recommended number of shares for any company. Each company is different, and therefore will possess different requirements that mean two shares may be suitable, or two hundred may be.
When first incorporating your Ltd company it is worth considering the impact of issuing shares later down the road. Whilst it may just be you as a sole director and shareholder to begin with, should the business grow and need investors or other shareholders to come onboard, it may be wise to put aside shares to make this process easier. It is possible to create shares after an incorporation.
Most commonly, even numbers such as 10, 100 or 1000 are used because it is then easier to appropriate a percentage of ownership to these shares as opposed to an amount like 17.
It is worth noting that the value of issued share capital does represent the financial liability of shareholders. This means that if your business runs into debt, shareholders are legally required to contribute the nominal value of their shares toward paying off the debts.
The nominal value is commonly set at £1, so if a share is singular, the only contribution toward the debt would be £1. However if 100 are issued, the total amount of liability is £100. This is important to be aware of if you are issuing a multitude of shares and will be owning all of them yourself.
How to Issue More Shares After Company Formation
Whilst shares should be issued or allocated in the incorporation process, it is possible to issue shares once a business is formed.
To do so, you must notify Companies House using Form SH01: Return of Allotment. Companies House will then ask for the following information:
- The Company Name
- The Company Registration Number (CRN)
- The Date of Allotment
- The Details of New Allotments: the number, type, and nominal value
- Details of any non-cash payments if applicable
- The Statement of Capital detailing all issued shares in the company after the new shares are allocated
- Authorising signature of the director
Issuing shares is only one part of the lengthy formation process that companies must undertake when registering their business. At MachFast, we take the hassle and time out of that registration by process by allowing you to register your business in just a few clicks of a button – yes, really.
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