How Many Shares Should a UK Company Have During Incorporation?

When incorporating a company in the UK, you must consider many factors, including how many shares your company should have. But you shouldn't worry; when incorporating a company in the UK, Companies House needs at least one share. However, there is no maximum share requirement a company can have. The distribution of shares determines how much shareholders own a company. So, how many shares are you willing to share when owning a company? Do you need just one?

In this guide, we will navigate how to issue shares during a company formation, who a shareholder is, and what they can do.

What is a Share?

A share is a part of a company. Every share holds a certain percentage of a business. An individual owning a limited company share is called a member or a shareholder. This means the number of shares you issue will determine how much the shareholder will own and control the company. Shareholders receive a share of trading profits that match their ownership percentage.

Here are examples of major share structures:

• One share is equivalent to 100% company ownership
• Two equal shares are equivalent to 50% company ownership per share
• Ten equal shares are equivalent to 10% ownership for every share
• 100 equal value is equivalent to 1% ownership for each share

How Many Shares Should a Company have During Incorporation?

When setting up a company, you must decide how many shares you will issue. Basically, the number of shares you issue will determine the number of members you will have. If you plan to be the only shareholder, you will issue yourself one share. But if you intend to have more than one shareholder, you must issue every shareholder at least one share.

You can also issue you're your shareholders more than a share each during company incorporation or after. This depends on how much flexibility you're looking for. For instance, if you intend to sell shares in the future, bring new shareholders, or raise capital to expand your company.

Issuing more shares than you need to sell them later when the need arises is easier and simpler than allotting new shares in the future.

Can you Allot More than One Share?

If you are incorporating a company with no intentions of bringing shareholders in the future, you can allot one share to yourself. This is common in most small companies. But if you think of selling your company shares in the future, allot more than a share during incorporation until you sell them.

Most companies have shares in quantities of 10, while others issue 100 or 1000 shares. These quantities are mostly used because they're easily divisible, making it easy to allocate and calculate the members' ownership percentage.

The numbers of shares determine the company's ownership percentage

Each share issued represents a fraction (percentage) of a company. This is when you own a share, you have a certain percentage of a business.

For example,

• When you incorporate a company with you as a shareholder and allot one share, one share represents the entire company. This makes you own 100% of the company.
• When you incorporate a company with other members allotting ten equal shares, each share represents 10%
• When registering a company with a partner and allotting ten shares, each representing 10%, and you take five shares each, each individual owns 50% of the company.
• Incorporating a company with three other members and allotting 100 shares, every share will represent 1% of the company. But every individual may have 25 equal shares, meaning each person will own 25% of the business.

Every share you allot can have a nominal value, mostly £1. This is the money shareholders must pay after issuing their shares, which is determined by individual limited liability. Which is usually the amount you will legally contribute if your company cannot pay the debts.

Remember to consider how many shares to allot. Suppose you issue £1,000 shares you will be for £1,000 if the company can't pay its creditors. So, avoid issuing more shares than needed.

At What Time Will You Pay for Your Share?

A shareholder doesn't need to pay for their shares, although in most cases, shares are allotted to raise capital. Shareholder payments are made in the business fund and recorded in the company's financial record. Remember, shares can be in cash or non-cash payments.

However, if a company is wound up or goes bankrupt, you must pay for the shares to pay the company's debts. So, if a company is wound up, each shareholder is accountable for paying for their share's nominal value.

Can One Issue Different Types of Shares?

You can create and issue different shares during or after the company's incorporation. Most companies issue ordinary shares that give shareholders equal value, but you can issue other shares to shareholders. Here are different types of shares you can issue.

• Ordinary shares: this type of share gives shareholders equal voting and profit rights. Although this type of share, members do not have rights to receive dividends
• Preference shares: These shares come with preferential rights over ordinary shares. Individuals with preference shares have the right to receive fixed dividends and a return of capital if the company goes into liquidation.
• Redeemable preference shares: they allow shareholders to redeem the principal share capital. The repayment of shares may be conducted at an agreed time from company capital or issuance of new shares.
• Convertible preference shares: these shares have rights to dividends for a specified time. After that, the company may convert the shares to ordinary or leave them. However, the conversion price is specified in the company's constitution.
• Treasury shares: these are ordinary shares acquired from shareholders.

Conclusion

The recommended number of shares during a UK company incorporation depends on the company. You can issue one share if you intend to run the company yourself. You can also use a simple solution used by most companies and issue 100 shares. Every share corresponds to 1% of your company. This also makes it easier to calculate how much a shareholder owns a company and how many rights and control they have over the business. Have any question on company shares or need help with company formation advise in the UK? Reach out to IncorpUK today.