Limited Company Shares – A Guide

What are limited company shares? Shares are effectively an allocation or percentage of ownership within a company. Every limited company that is formed in the UK must contain at least one share. The process of forming a company which is limited by shares is very straightforward, and as there is limited financial liability of this specific structure, the risk is ultimately minimalized in comparison to other company structures.

But how are the shares organised and how is the value calculated? Well first you will need to view the breakdown of share capital.

What is share capital?

The share capital in simple terms, is the total value of all the shares added up. A common scenario is allocating 1 share at £1 to an individual to enable the total share capital to be £1. This is the amount of money that is invested by the shareholders in exchange for shares or ownership.

Shareholders will then exercise how their company will be structured and managed. Newly formed limited companies aren’t liable to specify their total share capital, instead needing to deposit an initial statement of capital. This can be updated when the new shares are issued.

In the first instance upon incorporation, shares are allotted to members or shareholders. Following this, new shares can allotted to existing or new members (but this must be in accordance to the Articles of Association and confirmation by the directors).

Each different type of share class has its own rights and conditions association with it. The common class involved with many limited companies are ‘ordinary shares

What are the different types of share class available?

Ordinary shares

There are no special rights or restrictions attached to them, these are the most commonly issued shares. It also offers both equal voting rights and profit entitlement.

Preference shares

Individuals who hold these shares will be paid annual dividends by the company, before other shareholders are paid.

Cumulative preference shares

Very similar to preference shares, however this allows the company to carry forward dividends payments in one given year.

Redeemable shares

This is where shares can be bought back by the company (having been agreed prior) after a certain period of time or equally on a particular date.

 How many shares should I issue?

This is a fully subjective and circumstantial question as it will depend on the situation and structure of the company. If a company is hoping to grow and may wish to raise capital in the future; then it would be beneficial to issue more shares when incorporating the company. Round numbers such as 10 & 100 are favourable as it allows easier percentage splits with shareholders.

To issue shares after incorporation; you will need to complete a SH01 form which we can submit to Companies House for you. Included within this form is generic company information, the date of share allotment, the statement capital and prescribed particulars.

We appreciate that you may have a wide range of queries regarding shares within your limited company. We are pleased to be able to offer expert guidance from our team of qualified company secretaries. They will discuss with you anything about your current structure. We can review it and help draft any changes you would like to make.

Categorised in: Business Planning, Uncategorised

This post was written by Chris Beck