A Complete Guide to Limited Company Shares
Recently, Limited Companies came into the limelight once again after the rise of National Insurance for sole traders. But still, there are doubts regarding what a Limited company is, or how it works.
A Limited Company is one which is formed by the individuals who own a portion of the company, known as shares. It could be simply a single individual owning the share of the entire company, or a group of people owning certain portions of the shares. But there are much more to the concept of a Limited Company.
Share Capital
Shares are a very prevalent method to divide the total capital of most limited companies. The number and value of shares are at the discretion of the company itself. One company can issue a single share at 1 pound, while another can issue 10 shares at 1 pound each.
Share capital has been the means to make the shareholders liable in a limited way while indulging them in the profits and decision-making. The Issued share Capital is simply the sum total of the shares issued by the company; though, it can differ from the market value. The value of shares can vary from the time they were sold.
Total nominal value of the unpaid shares can be understood as the financial liability of the shareholders. The limited liability that we mentioned earlier makes the shareholders liable to pay the bills of the company if the company goes bankrupt.
In case the limited company has a single shareholder with a single share, that share is said to represent 100% of the company. This percentage of ownership is always proportional to the number of the shares issued.
Types of Shares
Shares, contrary to popular belief, are more than of just one type. The nature of shares is often determined while the formation of the company. Some of the types of shares are:
- Ordinary: The most common type of shares that holds equal value and partnership irrespective of who holds it.
- Preference: These shares have a higher value than others due to the dividend payment derived from the profits of the company.
- Non-Voting: Issued with the sole purpose of reducing taxes.
- Redeemable: There are often issued to the employees with the legal authority to buy them back after a certain period of time.
As we know, most companies deal with ordinary shares, but the other types of shares serve special purposes. In case you are still not clear about the types of shares you would need, it is best to ask a company formation expert.
The type of shares can be changed even after the formation of the company, but this needs to be in accordance with the articles of association, or need to be authorized by company members.
Number of shares
One important question that needs to be addressed is the number of shares to be issued. The answer is: as much as you would need. As the company grows, the number of shares also needs to be kept growing. More shares also make it easier to raise funds.
Issuing shares after company formation
It is not absolutely mandatory to issue shares during the formation of the company. In case you want to issue them later, a complete form SH01 from Companies House along with some other information is required. This information usually includes the name and registration number of the company, the date of allotment of shares and the details of shares/non-cash payments/statement capital, among other things. Particular information like voting rights, dividend rights, and redeemable rights might also be needed. This entire process needs the presence of the company director.