What is a Company Shareholder?
Shareholders are like the backbone of a company because without them a limited company cannot be formed. Thus before a company can be incorporated, it must provide the list of one or more shareholders.
The duties and responsibilities of shareholders in a company cannot be overemphasized. it is therefore necessary that you know what a company's shareholders entail, what it takes to be one, their roles and responsibilities, how they differ from the directors and other stakeholders of the company, and many more. In this blog post we'll see all of these. Let's get started.
What is a Company Shareholder?
A company shareholder is an individual, group, or organization that owns a company. They own one or more shares in a company and that makes them entitled to the gain in which the company makes. They are often referred to as the members of a company and they are coupled with making important company decisions, appointing directors of the company, providing capital for the company, and many more.
Although all shareholders are referred to as the owners of a business, the numbers and values of shares they hold in a limited company determine how much of that business or company they own, and that subsequently determines their decision-making power and the amount of profits they make from the company.
Shareholders are one important element that must be included when registering a new company with the Companies House in the UK. Without the shareholder, forming or incorporating a new limited company might be impossible. There is no limit to the number of shareholders that a company could have, although a company might have only one shareholder who could even act as the company’s director.
Rights and Responsibilities of a Company Shareholder
A shareholder is not expected to be involved in the daily running of the business, but there are some rights and responsibilities that they should carry out within the company. Each shareholder right within a company is most times defined by the quantity and type of shares held and is usually indicated on the articles of association and the shareholder agreement. Here are some rights and responsibilities of a typical limited company shareholder:
- Right to change the company name if necessary
- Restructuring of the company
- Holding one or more shares in the company
- Appointing new directors and removing directors
- Giving permission to the directors to assume powers whenever necessary
- Issuing more shares to new shareholders after company incorporation
- Transferring of shares.
- Accepting profits from the company according to the value of shares held
- Attending company meetings and making vital decisions.
- Preparing the salary structure of directors.
- Making contributions towards the company’s debt according to their liability limits.
Difference between Company Shareholder, Subscriber and Member
Shareholders, subscribers, and members are all individuals who hold a share in a company. However, there are still some differences between these three, we will look at that now.
Shareholder
A shareholder is an individual who owns a share in a company. So far they own a share in the company, they are referred to as a Shareholder and can also be called a member. However, they can only be called a subscriber if they are part of the company during formation or incorporation.
Subscribers
Subscribers are the first shareholders of a company. They are part of the company’s incorporation process and therefore have their name in the memorandum of association when the company is being formed. Subscribers can also be called members.
Members
Members is a collective name for all shareholders irrespective of when they join the company. Whether a shareholder joins a company during or after a company’s incorporation process, he or she can be called a member. Also if a member holds more than 25% percent of a company’s shares, they can be referred to as a Person with Significant Control (PSC).
Difference between a Company Shareholder and a Guarantor
Shareholders are known to own a company because they have shares in the company. On the other hand, a guarantor owns a company by means of a guarantee. Consequently, shareholders are liable for making profits based on the value of their shares as the company grows whereas a guarantor doesn’t make a profit from his company. Subsequently, both of them are also referred to as members of a company.
Guarantors of a company don’t have shares and are mostly owned by non-profit organizations. While shareholders contribute to the company’s debt based on the value of their shares, a guarantor contributes a set amount of funds towards the company’s debt as a guarantee.
Difference between Company Shareholders and Stakeholders
Although many individuals still confuse shareholders and stakeholders and therefore use them interchangeably. It should be noted that they are two different terms.
A shareholder is an owner of a company by the virtue of holding shares in such company while stakeholders are individuals who are directly or indirectly part of a company by the virtue of being resourceful to the company. Stakeholders have a vested interest in the company and they contribute to the success story of a company. They include employees, lenders, customers, clients, suppliers, volunteers, and other individuals who are beneficial to the company and to which the company is useful.
Difference between Shareholder and Director of a Company
As earlier explained, shareholders are individuals, groups, or organizations that own a share in a company and ultimately are the owners of a company. On the other hand, a director is an individual who manages the day-to-day affairs of a company. They are most times appointed by the shareholders and they ensure the smooth running of the business. Although these two positions are distinct with different responsibilities, both can be assumed by just one person.
A shareholder of a company can also be a director of a company, meaning they can be the owner and also manage the company. This is mostly common and practiced by small business owners when starting up their businesses.
Can a Company Add New Shareholders after Incorporation?
Yes, a company can add new shareholders after incorporation. You can either add them by transferring shares or allotting more shares. Usually, when incorporating a company, you would have included all shareholder's details in the Company formation documents. But after a new shareholder joins the company after incorporation, you would need to notify the UK Companies House.
If they joined the company by transfer of shares, you would be required to provide their information when filing your company’s next confirmation statement. You would also need to issue a share certificate to them and update their details in your company members register.
However, if they joined the company by allotment of more shares, then you must file the form SH01 (Return of Allotment of Shares) with the Companies House within one month of allotment. Also, you’ll be required to provide their details in your company's next confirmation statement.
What Company Shareholder Information is Available to the Public?
The UK Companies House provides some information about all incorporated limited companies on their website. This information is available to provide transparency on the part of the UK Register of Companies and the incorporated companies. Some of the information is the details of the shareholders of companies. Below are some of the shareholder's information that is available to the public.
- Full name of Shareholders
- Service Address (for subscribers)
- Number of shares held by shareholders
- Values attached to the shares/currency of the shares
In addition to this, if a shareholder is a Person with Significant Control, information like the year of birth, nationality, and country of residence will also be made available. Also, all of this information will remain in the Companies House register even if a shareholder leaves the company.
What is a Corporate Shareholder?
A corporate shareholder is a company, institution, small business, etc. that owns a share in another company. So basically shareholders aren’t only individuals, but also corporate bodies or entities that have invested in a company and also own a share from the company. They are usually referred to as the non-human shareholders and they exert the rights and responsibilities on the company just like the human shareholders do.
Usually, a corporate shareholder appoints a representative who attends meetings, exercises voting rights, and participates in other duties of the shareholders on behalf of the corporate entity.
Importance of a Corporate Shareholder to a Company
here are some of the importance of a corporate
More Capital is Generated
Corporate shareholders most of the time bring a larger capital in the form of owning a high quantity of shares within the company. This alone helps the company to generate more funds that are used in the development, research activities, expansion of business activities, and many more.
Enhances Company’s credibility
Having a reputable business organization as a shareholder in your company is like gold. It doesn’t only help build trust in the public but it helps welcome new shareholders. Moreover, it can enhance the chances of attracting more favorable suppliers or other stakeholders who’ll be willing to seal a good deal with your company.
More Expertise and Resources are added to the Company
Because corporate shareholders already have a business or organization that they control, it has the experience and expertise that is needed to run a new business. They have the marketing skills, management, and organization skills that could lead to the growth and development of the new company in which they are a shareholder. All of the knowledge and experience are valuables that they bring to the company.
Apart from that they know where they can source for industry-related materials or resources. Some of them have direct contact with suppliers and many more.
What is A Company Shareholder Agreement?
A company shareholder agreement is a document that outlines the duties and responsibilities of each shareholder and director of the company. It shows how members are expected to manage the company and how vital company decisions should be made. Although the shareholder agreement isn’t part of the requirement outlined by the Companies House during company formation, it is however recommended that every company with more than a shareholder and a director should possess it.
Company shareholder agreement constitute a way in which members get to understand their rights, duties, and restrictions as deemed fit. Every company has its separate shareholder agreement and this makes the content of this document distinct from one company to another. However, the main purpose of the shareholder agreement is to make all members agree or be on one term and consequently prevent conflicts.
What Information is Contained in a Shareholder Agreement
Here is the information you would find in a typical shareholder agreement:
- How company’s profits will be allocated to shareholders
- Duties, rights, and restrictions of directors
- Statement of all directors’ salaries
- Guidelines on transferring and issuing shares to new members
- List of Company’s funds and investment and how to source more
- Guidelines on Company Restructuring
- How to bring about resolution in of dispute
- Guidelines on how the company’s decisions should be made.
- Rules on Legal proceedings
- Guidelines on Company Name Change
Who is Responsible for Creating a Shareholder Agreement?
A company shareholder agreement can be created by any member or shareholder of the company following several meetings with other shareholders and a solicitor. This can be drawn during or after the company’s formation. Basically, the information on this document can be altered at any time but it should be done after every shareholder agrees and comes to a conclusion.
Although there isn’t any specific rule stating where the company shareholder agreement should be kept, ideally most companies have them stored in their registered office.
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Conclusion
Being a shareholder of a company especially when you hold a high value of shares comes with some crucial duties and responsibilities as simplified in this blog. Shareholders must duly understand who they are and how they can properly manage the company with the help of the directors. Have any question on company shareholder? Reach out to us with your questions and we'll be glad to answer.