There is no right or wrong answer about the number of shares you should issue when forming your company, however your answer will depend on your situation and how your company is going to be run.
Updated July 2016.
All registered companies are run by its board of directors and the shareholders, shareholders are also the legal owners. A shareholder can also be a director.
What are shares used for?
When a private Limited Company starts trading, normally a company will have assets and cash placed into it by the owners – who are the shareholders – to help get the business started and running properly. For example, a new company requires £5,000 to get started. This money may be used to pay for branding, advertising, website design and purchasing of stock. The £5,000 capital would have been placed into the company by the shareholders in exchange for shares in the company.
How many shares should I create?
If there is more than one shareholder in the company, their shares would represent the amount of capital they invested, so if ‘Joe Bloggs’ the first shareholder invested 70% of the capital he will then require 70% of the shares as equal representation. The simplest way of raising the £5,000 capital needed would be to create 5,000 shares, as this would equated to each share value being £1.00. Of course this is a very simplistic approach but does make it very transparent and equal.
An alternative approach, if there is more than one shareholder, would be to issue one share each. Any capital placed into the business would be classified as a loan by the shareholder and would be required to be paid back.
Both examples mentioned above are very simplistic methods of distributing equal shareholding when capital is placed into a company. In both cases the shareholders are equal owners of the business, which means they will receive equal dividends, equal assets and equal voting rights.
What about tax?
While both of the above methods are similar in terms of ownership and rights, both methods are very different in terms of taxation. Please contact us today so we can talk you through how best to optimise your tax outlay. We have a vast knowledge of accounting and tax advice that we have gained over our years of service in the industry, so we can advise you of your best course of action.
What if I don’t want other shareholders?
If you are thinking about going it alone and forming a private limited company on your own with no other business partners involved, we would recommend issuing 1 share to start. This means you are the main and sole shareholder of your company. If more shares are needed further down the line, for example if you take on a partner or want to expand your company, these can be issued at a later date.
If you are looking to form a Limited Company, or you are interested in creating the right first impression by using our mail forwarding address services, please do contact us today.