What are shareholders?
Shareholders are the people who collectively own the company, they may or may not also be directors of the company.
Each shareholder has voting rights. The shareholder with the most shares has the most voting rights, this is sometimes known as having a 'controlling interest.'
Dividends can be issued to shareholders at the discretion of company directors. Dividends are payments by the company to shareholders separate to a salary.
What are shares?
Shares determine how the ownership of the company is divided. A limited company must have at least one share.
If a company has one share then the shareholder owns 100% of that company.
If the company then issued three more shares to three new shareholders, each shareholder would then own 25% of the company.
All shares have a nominal value, that is the minimum value that must be paid by shareholders to the company to issue each share.
For example, if 50 shares are issued by a limited company with a nominal value of £1 each then £50 must be paid to the company by shareholders to purchase those shares.
The share value is different to the nominal value and increases as the company grows and becomes more profitable, the nominal share value remains the same.
Are there different categories of shares?
Different categories of shares are known as 'share classes'. This enables different rights to be assigned to different classes of shares.
For example, one set of shareholders that manage the company may hold a class of shares with voting rights. Whereas a group of investors that isn't involved in management of the company may hold the same number of shares but without voting rights.
Typically shares are 'ordinary shares', ordinary shares enable the shareholder to participate in voting and receive company dividends. This is most common type of share for recently formed limited companies.
Other classes of share include preference shares, non-voting shares and redeemable shares.
How does the company issue new shares?
To issue new shares the company directors or other authorised persons complete and file a SH01 'allotment of shares' form with Companies House.
The following confirmation statement filed with Companies House will include updated shareholder details including the number of shares owned by each shareholder.
In addition, the next set of company accounts will also reflect this share issue.
Can shares be transferred to another shareholder?
Shares can be transferred to another shareholder in exchange for a cash payment, good or services, to write off debts or free of charge (this is known as 'nil consideration').
There are sometimes restrictions on the transfer of shares, any restrictions will be detailed in the companies articles of association or shareholders agreement if applicable.
If the value of a share sale is £1,000 or higher then HMRC will need to be informed via a stock transfer form. In this case the stock transferee is liable to pay stamp duty tax of 0.5%.
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This article was written by Will Farmer MAAT,
AAT Licensed Accountant and Director of Matrix Accountancy Services Limited.