A Quick Guide to Managing a Company’s Share Capital

  • 6 min read

In private limited companies, share capital refers to the amount of money invested by company owners in exchange for shares of ownership. Primarily company owners and company directors will be classed as shareholders, but any person can become a shareholder depending on how shares are issued to members of the company.

If you are registering a new company, the MachFast app automatically creates shares for you. If you are looking to modify your share capital in an existing company, we strongly recommend seeking professional legal and accounting advise.

Share capital is created upon the incorporation of a company, and there are specific legal requirements that companies must abide by. They are:

  • That all companies must possess at least one share. At incorporation, the majority of small limited companies will elect to issue shares at a £0.01 nominal value. The MachFast.com app automatically creates 100 shares per shareholder at a £0.01 nominal price per share.
  • That new companies must submit the initial statements of capital, or statements of guarantee. The MachFast.com app does this automatically for all newly formed companies.
  • That existing companies must amend their Articles of Association if they will be allotting shares beyond the ‘authorised share capital’ ceiling first stated upon the company being incorporated.
  • That a limited company’s ‘issued share capital’ will be the total value of shares in issue. E.g, a company possessing 100 £0.01 shares has an issued total share capital of £1.
  • That shares will be issued to initial company members upon incorporation but may allot new shares to new members at a future date subject to the company Articles of Association and a board resolution. The MachFast.com app automatically creates standard Articles of Association for your new company. These Articles were created by Companies House to make life easier for smaller companies. You can also upload custom articles with the MachFast.com app if your have a more complex company set up.

Types of shares

Limited Companies can issue 4 types of shares:

  • Ordinary shares which possess no specific rights or restrictions and can be subdivided into shares with different values.
  • Preference shares which pay annual dividends to holders of these shares ahead of paying other shareholders.
  • Cumulative preference shares which act similarly to preference shares but allow companies to carry forward dividend payments if they cannot be made in one year.
  • Redeemable shares which are issued on the condition that the company can reclaim them through buying the shares back once a certain period of time has passed, or on a certain date.

The MachFast.com app automatically creates 100 Ordinary shares per shareholder when you form a company. You can create as many shares of different type and have as many shares holders as you wish.

Inform Companies House of Changes to a Company’s Share Capital

PROFESSIONAL LEGAL AND ACCOUNTING ADVISE STRONGLY RECOMMENDED

We strongly recommend that you seek professional legal and accounting advise prior to altering your company’s share structure and/or share capital.

When a limited company is first incorporated it must submit a statement of capital. The MachFast.com app does this for you when you form a company. This informs Companies House of which types of shares will be issued, the necessary rights and restrictions depending on the type of share, provides information about shareholders, states the number of shares which are paid or unpaid and identifies the currency used by the company. 

If a company wishes to make changes to its share capital, it must provide an updated Statement of Capital. The form to do this is SH19.

For other decisions, such as reducing the number of shares and allotting new shares, there are a multitude of forms which companies must use to inform Companies House of the changes.

Allotting new shares

Consolidating, redeeming, reconverting or subdividing shares

  • To create fewer shares of a greater nominal value (consolidate) and to create more shares of smaller nominal value (subdivide), companies must complete and submit Form SH02 where they can consolidate, redeem shares, re-convert stock into shares or subdivide shares. Companies can also fill the form in online and upload it directly to Companies House

Purchasing own shares

If a company wishes to purchase its own shares we strongly recommend that it’s directors seek professional advise on how to do this properly. Own share purchases is a very complicated part of the Companies Act and requires a number of steps to be valid in addition to proper Companies House forms.

  • To allow a limited company to purchase its own shares, companies must file and submit Form SH03 to Companies House.

Notify cancellation, sale or transfer of Treasury Shares

Treasury Shares is another complicated company governance topic that requires careful analysis and consideration. In the U.K., small companies were allowed to have treasury shares quite recently. To create and manage treasury shares involves legal and accounting procedures. Please make sure to consult professional advisors when you are thinking about or managing treasury shares.

Treasury shares refers to shares owned by the company which have been purchased back from a shareholder.

  • To notify Companies House of a sale or transfer of treasury shares, companies must complete and file Form SH04 and can upload the form online to Companies House.
  • To notify Companies House of the cancellation of treasury shares, companies must complete and file Form SH05 which can also be uploaded directly to Companies House online using the above link.

Cancelling of Shares

  • To give notice of a cancellation of shares by a private limited company upon purchase, companies must file and submit Form SH06.
  • Public companies must use Form SH07 to notify Companies House of the cancellation of shares upon purchase.

Giving Notice

Companies must give notice to Companies House of a number of changes around shares, including if a new version of class rights is issued or if new members are issued with shares.

  • To give notice of a change in the particulars of rights attached to shares, companies must complete and submit Form SH10.
  • To give notice of a new class of members receiving shares, companies must complete and submit Form SH11.
  • To give notice of particulars of variation of class rights of members for a company without share capital, companies must complete and submit Form SH12.
  • To give notice of a name (or new name) or other designation of class of members for a company without share capital, companies must complete and submit Form SH13.

All of the above documents can be submitted electronically to Companies House using this service.

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