What is a share?
A share is a unit of ownership of a company limited by shares and represents company ownership. The number of shares held determines the level of control and ownership the shareholder has within the company.
For new companies it is often recommended to start with the minimum required shares and issue additional shares in future if required.
What is the nominal value?
The nominal value of a share is assigned when the share is issued and is often set at £1, however, it can be any value above the minimum of £0.0001.
Fully paid shares are those for which the full amount is paid upfront, in comparison to partly paid shares in which the shareholder only pays a specified amount of the nominal value of the shares until the rest is paid later. If shares are fully paid, the shareholders should pay the nominal value of their shares into the company’s bank account once opened.
What types of shares are available?
Ordinary shares
This is the most common type of share. New companies typically issue ordinary shares when they are first incorporated, as they provide shareholders with the equal rights to vote and receive dividends.
Alphabet shares
These are typically Ordinary shares with different classes. Companies may opt for alphabet shares, (or A, B or C shares) to vary shareholder entitlement to dividends, vote and capital upon the winding up of the company.
Non-voting shares
As the name implies, shareholders who own these shares will have no right to vote or attend general meetings. Companies commonly issue non-voting shares to employees to pay remuneration or bonuses as dividends for tax efficiency. These can also be used to raise new share capital without diluting the control of existing shareholders. A potential benefit of holding non-voting shares is that most receive dividends, compared to shares with voting rights whose dividends depend on company performance.
Preference shares
Preference shares do not provide holders with voting rights automatically, as ordinary shares do. However, they do give shareholders priority over other shareholders when it comes to dividend distribution, dependent on sufficient profits.
Redeemable shares
Redeemable shares are issued with the agreement that the company will buy back the shares at a later date. The redemption price will likely be a fixed amount, this could be the nominal value, or a fixed price agreed upon by the company and shareholder. Anyone who owns redeemable shares has the option to sell or transfer their shares subject to the company’s articles of association, or a shareholder agreement. These will be subject to a redemption date which may be:
- A fixed date
- At the directors’ discretion
- At the company’s option
The option to buy back shares allows the company to have more capital invested and buy it back as and when it is in a suitable financial position to do so to recover more control.
How many shares can a company issue?
On incorporation of the company, there must be at least 1 issued share but there is no maximum number of shares that can be issued. Additional shares can be issued throughout the company’s life, or you can complete share transfers between existing or new shareholders.
Remember, all shares will need to be paid at some point in the future, so it is not encouraged to issue large amounts of partly paid share capital for appearances. This essentially leaves the shareholder owing a debt to the company, which is not recommended if you are not certain that you will be able to pay the remaining total.
Also Read: Companies House — the changing role of the registrar
Can I issue different classes of shares?
A company can issue different shares to appropriately meet its needs, however, most start-ups issue ‘Ordinary’ shares of equal value and rights, or with varying rights.
Also Read: 6 Common Questions About Shareholders
Can shares be cancelled?
A company can repurchase and cancel shares if it wishes to reduce its share capital.
Can share classes be changed?
Typically, startups only issue ordinary shares so a company may wish to redesignate the shares to provide different voting and dividend rights to shareholders. Alternatively, they may wish to redesignate alphabet shares into the same sub-division for a shareholder to have one set of shareholdings.
To redesignate shares, an ordinary resolution will need to be signed along with filing the relevant forms with Companies House and issuing new share certificates.
How are shares transferred?
Shareholders can transfer their shares to another by way of a stock transfer form. New share certificates will need to be issued and old certificates cancelled. Any relevant updates should be updated with Companies House for the PSC register and confirmation statement filing.
If the transaction value is over £1,000, Stamp Duty will be charged at 0.5%.
Next steps
Indecisive on how many shares to issue? Want to transfer or issue new shares? Contact our helpful and friendly team to discuss your needs today.
