When incorporating you own limited company
, you will have to decide on how many shares to issue from the outset. As you may know (or not know) a share is one of the “parts” into which a business’ capital is divided. Individuals who own a share will therefore own part of the company.
Both individuals (UK & Non-UK
) and corporate bodies can become shareholders of a limited company incorporated in the UK. Additionally, there is no age restriction to becoming a shareholder which enables many owners to gift a certain number of shares to younger family member (although there may be reasons such as taxation which would deter you from gifting shares to minor family members).
A minimum of one share must be issued upon incorporating. Additionally, if you plan on having more than one shareholder, then you must issue at least one share per shareholder. You can’t divide a whole share into parts (i.e. 1 share split 50% each to two different shareholders).
Often, individuals who wish to be sole owners issue a single share in order to own 100% of their company. However, if they later wish to split the ownership, or change the structure of the business, having only 1 share could lead to complications down the line.
So how many should I issue?
A common practice is to issue share capital which is easily divisible in the future (for example it may be best to issue 50 or 100 shares upon incorporation). By doing so this will allow you to more comfortably split / change the ownership of shares going forward. Many businesses tend to issue 100 shares of £1 each. As so, each share represents 1% of the business.
When issuing share you not only have to choose the amount to issue but also the nominal value of the share. The nominal value represents the amount that the shareholder has agreed to pay per share.
£1 is a commonly chosen value as it is both easy to pay for and does not carry a high financial burden on the shareholder acquiring the share capital. However, if for some reason you preferred your company to issue 1,000,000 shares upon incorporation, it may make sense to have a nominal value of 1p or 0.1p per share because by doing so, the overall capital input is not too burdensome.
If I acquire shares, when do these shares need to be paid for?
Shareholders are not obliged to pay for their shares except if the company is wound up or goes into liquidation (this is due to the limited liability that a limited company provides to shareholders).
If you would like more information or have any questions about shares, then please do not hesitate to contact one of our tax specialists at 020 8429 9245 or email [email protected]