{"id":5262,"date":"2017-03-16T15:29:58","date_gmt":"2017-03-16T15:29:58","guid":{"rendered":"https:\/\/www.qualityformations.co.uk\/blog\/?p=5262"},"modified":"2024-05-01T01:15:19","modified_gmt":"2024-05-01T00:15:19","slug":"understanding-limited-company-shares","status":"publish","type":"post","link":"https:\/\/www.qualitycompanyformations.co.uk\/blog\/understanding-limited-company-shares\/","title":{"rendered":"Understanding limited company shares"},"content":{"rendered":"

If you are planning to set up a UK company limited by shares, it\u2019s important to have a basic understanding of shares. What are they? How do they work? How many should or can you have? The concept of limited company shares can be confusing at first, but it\u2019s quite simple once you get your head around it.<\/p>\n Transfer shares in your company today<\/span><\/a>\n \n

If you\u2019re forming a company on your own, it should be relatively easy to decide how many shares you want to create. If you\u2019re planning to register a company<\/a> with other people, you may need to give a little more thought to ensure that everyone is treated fairly and gets the most out of their investment.<\/p>\n

We recommend speaking to an accountant if the ownership structure of your new business venture is complex.<\/p>\n

What is a share?<\/h3>\n

In simple terms, a share is a portion of a company limited by shares. Each share is owned by one or more individuals known as shareholders<\/a>, or ‘members’.<\/p>\n

If you own a share, you own part of the company, and you are entitled to some of the profits. Both the percentage of ownership and profit entitlement is dependent upon how many shares the company is divided into.<\/p>\n

Imagine a pie chart or a round cake cut up into slices. Each slice is a ‘share’ of that whole cake. The cake might be divided into equal portions – two pieces, four pieces, eight pieces, etc. Or it may be divided unequally, with some slices being bigger than others. It\u2019s exactly the same when it comes to shares in a company – the cake represent the company, and the slices represent individual shares.<\/p>\n

The Companies Act 2006<\/a> does not provide a definition of a share, but the most frequently cited legal definition is:<\/p>\n

‘A share is the interest of a shareholder in the company measured by a sum of money, for the purposes of liability in the first place, and of interest in the second, but also consisting of a series of mutual covenants entered into by all the shareholders in accordance with (now sec33(1) of the Companies Act 2006).’ Farwell J. in Borlands Trustee v. Steel [1901] 1 Ch. 279 at p. 288.<\/p><\/blockquote>\n

Issuing the first shares in a new company<\/h3>\n

When a limited by shares company is set up (registered\/incorporated) at Companies House, the subscribers (i.e., the first shareholders\/members)\u00a0 choose how many shares to issue. This information will be included on the company formation application form, with the name of each subscriber also added to the company’s memorandum of association<\/a>.<\/p>\n

The minimum requirement is one share. There isn\u2019t usually an upper limit to the number of shares issued unless the subscribers choose to add a restriction in the articles of association<\/a>.<\/p>\n Our Issue of Shares Service - only \u00a379.99<\/span><\/a>\n \n

When you register a new company, you will choose how many shares to create. The decision will be based on the number of shareholders your company has, as well as any future plans to sell parts of the business to investors.<\/p>\n

If you\u2019re setting up a company on your own (as the only shareholder and director<\/a>), you may wish to issue just one share to yourself. This will represent the whole company (100%), so you will have full control of the business and be entitled to all available profits.<\/p>\n

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Alternatively, you may want to issue more shares to yourself, or to other people if you are setting up the company with one or more business partners.<\/p>\n

Normally, even numbers of shares are preferred, such as two, four, six, eight, ten, 100, etc. This makes it easier to work out each shareholder\u2019s percentage of ownership and, therefore, the percentage of company profits they are entitled to receive.<\/p>\n

Examples of equal share divisions:<\/p>\n