Company shares – what are they?
A share is a token of ownership, and each one represents a vote in the company concerned. Any individual shareholder can have just one, or many.
What do they do?
As every share counts as a vote in the company, the more shares you have the more votes you have – for example, a person with 5 shares can out-vote a person with 4 shares.
The proportions of these votes depend on how many shares you have issued. For example, if you issue 100 shares and have two shareholders with 50 shares each this is exactly the same as issuing 10 shares and each shareholder having 5.
We do not advise you to issue many shares, as the number of shares increase your liability.
Shares may also carry the right to dividend and may allow the individual shareholder to benefit from the sale of the company.
What are they worth?
Each share has a “nominal value” (usually £1) but that has no bearing on the true value of the share or of the company. For instance, a company with a “nominal capital” of £1,000 represented by 1,000 shares may be sold for £200,000, in which case those ‘nominal’ £1 shares would have a ‘real’ value of £200 each.
What is a dividend?
Dividend is a payment made to the shareholders of a company in proportion to the number of shares held. Dividends are not paid automatically; it is the decision of the board of directors whether a dividend will be paid in a particular year, and how much dividend will be paid per share. This decision will normally be made on the basis of the company’s profits.
Who can own shares in a limited company?
Anyone can hold shares in a limited company, including people who also work in the company and receive a salary.
Who can own shares in a private limited company?
A private company is normally restricted to issuing shares to its members, to staff and their families and to debenture holders. However, by private arrangement, the company may issue shares to anyone it chooses. Shares in a private limited company may only be sold or transferred with the permission of the directors.
What are the different share types?
ordinary: As the name suggests these are the ordinary shares of the company with no special rights or restrictions. They may be divided into classes of different value.
preference: These shares normally carry a right that any annual dividends available for distribution will be paid preferentially on these shares before other classes.
differential share rights/values: Differential share rights/values: It is also possible to customise the rights of ordinary shares to create differential voting and/or dividend rights. Commonly, this is done by creating A, B and C shares (and so on) out of the ordinary share stock, with each share class being allocated rights as required.
When making such an arrangement it is important to think that matter through in terms of what the company wants to achieve, but without attempting to use legal jargon.
Is there a maximum and a minimum share capital?
There is no maximum to any company’s authorised share capital and no minimum share capital for private limited companies.
Must shareholders pay for their shares?
In a private limited company there is no obligation for the shareholders to pay for the shares they own. If the company decides that its shares should be ‘paid up’ then payment for those shares is made into the company’s own funds and those payments must be available. If shares are ‘paid up’ and the company subsequently goes into liquidation, there may be no further claim on the shareholders*. If shares are not ‘paid up’ and the company goes into liquidation due to debt, the shareholders will be required to pay the creditors the value of the shares that each shareholder owns.
* A director may be liable to further claims if it can be shown that he or she acted illegally, negligently or irresponsibly.