what are shares?

This guide intends to give you a basic overview of the UK concept of a private Limited company. There are other types of Limited company which are touched on briefly but the document assumes an interest in private Limited companies which comprise the overwhelming majority of Limited companies in the UK.

about shares
  • Limited companies are legal entities and it is the shares that determine who owns the company
  • How much of the company you own is determined by how many shares you own relative to the total number of shares that exist for that company
I want to own 90% of the company so I need 9 of the 10 shares we create
shares and dividends
  • Your entitlement to profits is determined by your relative stake in the company
  • If you own 30% of the shares of a company, you are entitled to 30% of the dividend payout
  • Dividends will only be paid if the company is profitable
  • Shares are not always created equal. Certain classes of share can be created with less entitlement to dividends
I will own half the company, so I need half the shares which entitle me to the half the profits
shares and control
  • Shares also equate to company voting rights at general meetings
  • Typically one ordinary share gives you one vote
  • Shares are not always created equal. Certain classes of shares can be created which give extra (or less) voting rights
My partner and I will own 50% each so we need to be careful over disagreements on big issues
how many shares to create?
  • Usually a Limited company is created with the fewest number of shares possible to accurately divide ownership
  • Shares typically have a low nominal value of £1. Each share you buy represents your financial risk if the company fails (e.g. £1 per share)
  • Additional shares can easily be created if the company brings in new shareholders or changes ownership ratios
  • Not all shares have to be issued
I'm only going to allocate 1 share for myself
Recording shareholders
  • A company must maintain a register denoting shareholders and shareholdings
  • Each year an annual return must be submitted to Companies House which updates the public register with shareholdings
  • Share certificates may be issued to shareholders
  • Shares may be transferred between shareholders (or to new ones) rather than creating additional shares
My company will have a few shareholders so I'd better keep accurate records
share classes
  • The overwhelming majority of Limited company shares are classed as "ordinary" with equal voting and dividend rights
  • Additional classes may be created with different voting and dividend rights
  • Other share classes are commonly Preference, Non-voting, B shares but in truth they can be called anything
  • The companies articles of association define how the shares work
I just want a normal simple company. It sounds like I should stick to ordinary shares

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