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All You Need to Know About Limited Company Shares

All You Need to Know About Limited Company Shares

by | Mar 1, 2021 | Guide, Tips & Advice | 0 comments

If you’re set to launch a company limited by shares, it’s important for you to understand all there is to know about these limited company shares and what they mean for your business. Before you begin working via your prestigious registered office address, take note of the following information about limited company shares and be well prepared to own and overcome all of their implications.

The Definition of Shares

Shares represent a portion of a company that is limited by shares. They’re a divided-up unit of a company’s value whereby each share is a certain percentage of the whole business. “Shareholders” or “members” are those individuals who own limited company shares.

The number of shares that a company member holds reflects the “amount” a company is owned or controlled by that company member. It is typical for shareholders to receive a percentage of the trading profits in relation to the shares they own.

Issuing Limited Company Shares

A company may issue a minimum of one (1) share. This is common when a limited company is set up by an individual and he/she is the sole owner and company director. There is no maximum number to issuing limited company shares and therefore, as a company owner, you can issue as many shares as you wish during the process of company incorporation.

Here are some clear, demonstrable examples of popular share structures:

  • One issued share = 100% company ownership.
  • Two of equal value = 50% ownership per share.
  • 10 of equal value = 10% ownership per share.
  • 100 of equal value = 1% ownership per share.

If a business is worth £100 million, and there are 50 million shares, then each share is worth £2 (typically listed as 200p). The value of such shares may fluctuate for various reasons.

Limited company shares may be issued by companies in order to raise finances. Investors will consider purchasing limited company shares in the belief that the company in which they have invested will become a profitable enterprise, thereby gaining their portion of the success.

What Is the Nominal Value of a Share?

A share’s nominal value represents the monetary figure that a member has paid (or agreed to pay) for their fraction of the company. The nominal value reflects how much a member is legally expected to pay towards the debts of a company or if/when the company endures a winding up order. Therefore, the limited liability of company owners is represented by the nominal value of limited company shares.  

What Is the Market Value of a Share?

The market value of a share is quite simply the amount that a share is worth at the point it is sold. For example, if a limited company share is sold for £1, then the market value of this share is £1.

What Types of Shares Can Be Issued by a Company?

There are a number of different types or “classes” of limited company shares, including:

  • Ordinary shares:

A standard type of share with no unique rights or restrictions.

  • Preference shares

When dividends are paid out, preference shares carry a right to preferential treatment.

  • Cumulative preference shares

Cumulative preference shares hold the right that unpaid dividends from one year may be carried forward to subsequent years.

  • Non-voting shares

Non-voting shares carry no rights to vote at general meetings. Companies will normally issue such shares to employees so that some of their earnings can be paid as dividends.

  • Redeemable shares

            Redeemable shares can be bought back/redeemed at some point in the future,    either on a pre-fixed date or in response to a particular event.

  • Alphabet shares

Alphabet shares permit companies to assign their shareholders with shares in different classes, and these distinct share classes are identifiable by a specific letter (hence the term “Alphabet Shares”).

  • Management shares

Management shares hold additional voting rights, such as 10 votes per share. Management shares are generally held by subscribers, thereby permitting them to retain more power and control than other members.

Ordinary shares often suffice for small companies as they are the most popular shares class, hence you needn’t be too concerned about all of the above types of limited company shares.

Who Can Become a Shareholder?

Any of the following may become shareholders:

  • Individual member
  • A number of individuals/groups
  • Partnerships
  • Another company/organisation/corporate body

Although shareholders have the final say and authority concerning integral business decisions, they are not allowed to be involved in the day-to-day management and running of money matters as this falls within the role of the company director.

Notably, limited company shareholders may appoint themselves as company directors. This means that they can create a limited company as they desire and take on the roles of both shareholder and director. This is a fairly normal practice in small companies.

Stock Exchange Implications

Prospective shareholders may only purchase shares in your company if your company is listed on a stock exchange. This occurs when an Initial Public Offering has been completed (for example, on the London Stock Exchange). In this process, you transform from being a private company to a public company, thereby permitting members of the public to ultimately buy shares when needed.  

Remember…

There are very specific implications of limited company shares of which new company owners must be aware. However, it’s worth noting that companies  limited by guarantee have guarantors and a “guaranteed amount”, instead of shareholders and shares.

To find out more about limited company shares, or for more information about obtaining a registered office address, contact Your Virtual Office London, today.

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