A Complete Guide To Limited Company Shares and Shareholders

Ryan Patrick

Feb 4, 2024 • 6 min read

During a limited company registration, there must be a minimum of one share or more. A share means the company ownership is divided into portions. If a company has one share, it means the share has not been divided into portions, and that share represents 100% of the company, and the owner owns the business as the sole shareholder.

However, when a business has more than a share, the company ownership is divided into portions, with every proportion presenting a company percentage. In this guide, we'll examine who is a shareholder, the limited company shares, and the type of shares.

A share is a fraction of a company limited by shares. Every share represents a portion of a company. An individual owning a share in a limited company is known as a member or a shareholder. Shareholders control a company, and the percentage of the profit they receive is based on their share percentage ownership. Let different share structures

One share allotment = 100% company ownership
Two equal shares = 50% company ownership
10 equal value = 10% company ownership
100 equal shares = 1% company ownership per share

What are the Purposes of Shares

When you incorporate a limited company, the law requires you to keep the following statutory records and ensure they are available for public inspection at your SAIL address or registered office.

Shares give you the amount of control in a business, meaning the more shares you own, the greater your power in a company.
Shares dictate each member's decision-making power, meaning more shares give you the right to vote on important company decisions. So, if you have more shares, you can cast more votes at general meetings.
Shares also determine the percentage of the company's profit you will pocket.
If a member owns 100% of the shares, you will receive all the income profit after deducting tax and expenses the company generates every year. However, the income can also be re-invested in the business.
If the company comprises more than one shareholder, then each shareholder will receive a portion of profits based on their company ownership percentage represented by the value of their shares.
The shares also dictate each shareholder's limited liability.
If one shareholder owns all company issued shares, they are required to contribute a nominal value of £1 per share to cover company debt if it's unable to pay.

Share capital is the nominal value of all company shares allotted by a limited company. A business can issue many shares and value them as it wants. This determines the company value and shareholders' total limited liability. For example:

When a company issues 1 share with a £1 nominal value, that company share capital is £1
When a company allots 10 shares with £1 nominal value each, the company share capital is £10
When a company allots 20 shares with £10 nominal value each, the company share capital is £200

A company issues many shares to many people, and every member must contribute the nominal value of their shares.

A company limited by guarantee doesn't have shares; its ownership is based on the guarantor's time and money contribution to the business. It's also determined by the value of money each guarantor will pay if the business is wound up.

Issued share capital is the amount of shares a company has issued. The market value of shares differs depending on a business's worth when selling the shares. The £1 nominal value is given to any share.

The nominal value of unpaid shares represents every shareholder's financial liability. If a company cannot pay bills, each member must legally contribute to the nominal value of the outstanding shares.

If a limited company allots one share, it has one shareholder. This sole owner is also the company's director, and if a company issues two equal shares, then the company has two owners, with both individuals owning each share.

This is a restriction that a company includes in the articles of association that limits total issued capital to a specific sum. This provision was mandatory under the Companies Act 1985 but was abolished under the Companies Act 2006 when stamp duty payments on allotted share capital became redundant. So, companies limited by shares must add provisions in their articles of association to restrict the value of issued shares during company incorporation.

Suppose the company was formed before the 1st of October 2009 (the abolition date). In that case, it is subject to restrictions, except if the members pass a resolution to do away with the resolution or add the authorised sum. Alternatively, they may adopt recent model articles in the company to remove the authorised share capital provision.

Type of Shares

A company can issue its members different shares, giving shareholders other rights and conditions. Most companies allot ordinary shares. This type of share has a £1 nominal value, giving each shareholder equal rights. The rights include:

Right to cast 1 vote during a general meeting
Right to equal payments of dividends
Right to equal capital if a business is dissolved

Let's look at the different types of shares outlined during incorporation.

Alphabet shares: Ordinary shares can be divided into different categories, each providing different dividend payment rates, voting rights, and other rights to each shareholder. This is a simple way to vary the rights of ordinary shares to members.
Deferred ordinary shares: Deferred shares are a category that typically distributes dividends to shareholders only after minimum dividends are satisfied for all other shares. These shares usually grant voting rights in general meetings and entitlement to a portion of surplus capital in the event of the company's liquidation.
Management shares: these shares provide additional voting rights to members. These shares are issued to the company's founding members to give them more control than shareholders who join the company after formation. Management shares have multiple votes, compared to shares with one vote per share.
Preference shares: these give shareholders a priority claim to a predetermined percentage of dividend payments, ensuring their profit share takes precedence over shareholders in other share classes. Since they lack voting rights, these shares do not grant the ability to participate in decision-making during general meetings. Additionally, preference shares may occasionally be subject to redemption.
Non-voting shares: Just as their name, they carry no voting rights. Members have the right to receive dividends from the business but cannot cast a vote. These kinds of shares are issued to family members of leading members and employees.
Redeemable shares: this type of share is issued with a clause that the company retains the option to repurchase the shares later, either at a specified time or under certain conditions. These shares are allotted to employees, enabling the company to redeem them in the event of an employee's departure.

Remember, share types are not restricted to the above classes. Your company may create any share. These are the most popular shares the UK private limited companies use.

How Many Shares Can a Limited Company Issue

Most entrepreneurs wonder how many shares a company can issue during incorporation. There is no specific answer to this; it depends on the company's situation. For instance, if you're forming a company as a sole owner, you can issue one share to yourself. But if a business wants to expand and sell part of it to raise share capital for expansion, you must issue more shares during formation. It's advisable to use whole numbers like 10 or 100 to make it easy to assign the percentage of the company.

Can a Company Issue Shares After Formation?

There's an option of issuing shares after a company's formation. You must fill the form SH01 with Companies House with other information such as

Company name
Company registration number
Share allotment date and details
Details of non-cash payment

What are the Prescribed Particulars Attached to Shares?

Share types must have prescribed particulars. These are rights attached to a class of shares; they include redeemable rights, capital, voting, and dividend rights. All these must be outlined in the capital statement during the formation process.

The prescribed particulars can be outlined in articles of association. They are defined in Share and Share Capital Order 2009 as follows:

Details of voting rights attached to shares, such as rights that may arise in certain circumstances
Particulars of rights attached to share about dividends and distribution of profits
Details of rights attached to shares based on capital distribution, including during winding up.
Whether shares can be redeemed or liable for redeeming

When filling the prescribed particulars section, the Companies House recommends following these guidelines:

Provide information on the specified details for each class of issued shares.
Provide substantial information; do more than direct the reader to other documents or legislation for details on share rights.
Display information on voting, dividend, and distribution rights during winding up. Omit references to capital distribution or redemption unless they are applicable.

Acceptable wording example

The company's Ordinary shares have full voting rights, distributions, and dividends.

Unacceptable wording example

Refer to the article of association to see the rights
Rights as displayed in the articles
Not applicable
Paru passu

Conclusion

Understanding limited company shares and shareholders is crucial for effective corporate governance. Shares represent ownership percentages, dictating control, voting rights, and profit distribution. Various share types offer different rights, such as ordinary, preference, and management shares. Prescribed particulars, encompassing voting, dividend, and capital distribution rights, must be clearly outlined during company formation. Compliance with Companies House guidelines ensures transparency. The process involves carefully documenting whether a company issues shares during incorporation or afterward. Comprehensive knowledge of share structures enhances corporate decision-making and financial management. Do you have more questions on UK Limited shares? Reach out to IncorpUK today.

What is Share?