A Guide to Limited Company Shares and Shareholders

Shareholders

What is a shareholder?

This is the name given to anyone who owns ‘shares’ in a company limited by shares. As a shareholder, you own part of a company in relation to the proportion of shares you hold. A company can have just one shareholder or many shareholders. Each one is entitled to receive a portion of profits in relation to the number and value of their shares.

Shareholders are commonly referred to as 'members'. The first members in a company - the people who register the business and agree to become members - are also known as 'subscribers' because they subscribe their names to the memorandum of association during the company formation process.

Can anyone be a shareholder?

Yes, any person or corporate body (company, firm, organisation etc.) can be a shareholder of a private company limited by shares.

What is the minimum number of shareholders required to register a limited company?

Companies House requires at least one shareholder to incorporate a private company limited by shares. There is no maximum number of shareholders a company can have.

Is a shareholder the same as a director?

No. A shareholder owns a company through the purchase or acquisition of shares. A director is appointed by those shareholders to manage the operational activities of a company.

However, a shareholder can also be a director. This is very common in small companies and start-ups. In many cases, just one person will assume the role of sole shareholder and sole director.

What does a shareholder do?

Shareholders own shares in a company. The ‘nominal’ value of their shares is the amount they are liable to pay toward business debts.

Shareholders receive a portion of company profits in relation to the number and value of their shares.

They are not responsible for the day-to-day activities of the business unless they are also directors. Company owners will only make decisions about significant matters such as changing the name of the business, appointing, or removing directors, changing directors’ powers and altering the articles of association.

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What are shares?

A share is a piece of a company limited by shares. Each piece represents a certain percentage of the company. Anyone who owns shares in a limited company is called a 'shareholder' or 'member'.

The number of shares held by each member determines how much of the company they own and control. They normally receive a percentage of trading profits that correlates with their percentage of ownership.

Here are some simple examples of popular share structures:

How many shares can a company issue?

The minimum quantity of shares that a company can issue is one. This is common when someone is setting up a limited company as the sole owner and director. The Companies Act 2006 does not provide an upper limit, so you can issue as many shares as you like, either during or after the incorporation process.

Can I issue different types of shares?

You can create and issue any type of shares you like, whether that is during or after company incorporation. Most companies issue 'Ordinary' shares of equal value, which provide members with equal voting rights and equal profit rights. Alternatively, companies can issue multiple types ('classes') and values of shares to provide members with different voting and profit rights.

How much is a share worth?

Shares have a nominal value and a market value:

The nominal value, which is usually £1 (although this can be set at any value), is the minimum amount a member agrees to pay to take up a single share. The total nominal value of members' shares is the sum they are legally required to pay towards company debts when the business is wound up. Therefore, it represents the limit of a member's liability.
The market value of a share is the amount it is worth when it is sold. This will often vary from the nominal value.

The difference between the nominal value and market value is known as the share ‘premium’.

How do I register a limited company with multiple share classes?

Our sister website, Quality Company Formations, provides a specialist Multiple Share Class Package for anyone who wishes to set up a limited company with multiple share classes.

This package will also allow you to upload bespoke articles of association, as opposed to adopting Model articles from Companies House.

The incorporation process will typically take around 3 to 6 working hours to complete, and your new company will be ready to trade as soon as it is approved by Companies House.

Ready for more? Explore our blogs.

A guide to company shares A guide to transferring and issuing company shares Dividends – do all shareholders get them? The pros and cons of share capital

Shareholders:

Definition of Shareholder:
- A shareholder is an individual or entity that owns shares in a company limited by shares.
- Ownership is proportional to the number and value of shares held.
Eligibility to Be a Shareholder:
- Any person or corporate entity can be a shareholder in a private company limited by shares.
Minimum Number of Shareholders:
- At least one shareholder is required to incorporate a private company limited by shares.
- No maximum limit on the number of shareholders.
Shareholder vs. Director:
- Shareholders own the company through shares, while directors are appointed to manage operational activities.
- It's common for a shareholder to also be a director, especially in small companies and startups.
Functions of Shareholders:
- Shareholders own shares and are entitled to a portion of profits based on share ownership.
- They are not involved in day-to-day business activities unless serving as directors.
- Decision-making typically involves significant matters like business name changes, director appointments, etc.

Definition of Shares:
- A share represents a percentage of ownership in a company limited by shares.
- Shareholders receive a percentage of trading profits corresponding to their ownership percentage.
Share Structures:
- Examples of popular share structures are provided, illustrating ownership percentages based on the number of shares.
Number of Shares a Company Can Issue:
- A company can issue a minimum of one share.
- No upper limit on the quantity of shares a company can issue.
Types of Shares:
- Companies can issue different types or classes of shares, each with distinct voting and profit rights.
Share Values:
- Shares have nominal and market values.
- Nominal value represents the minimum amount a member agrees to pay for a share.
- Market value is the amount a share is worth when sold.
- The difference between nominal and market value is the share premium.

Company Formation:

Multiple Share Classes:
- Companies can be registered with multiple share classes, each with unique characteristics.
- Specialized services and packages, such as those offered by Quality Company Formations, cater to this.
Registration Process:
- The article provides insights into registering a limited company with multiple share classes through a specialized package.

In conclusion, the article covers fundamental concepts related to shareholders, shares, and company formation, catering to both novices and those seeking a deeper understanding of corporate structures and governance.

A Guide to Limited Company Shares and Shareholders | 1st Formations (2024)