What are Shareholders and Shares?

Shareholders are the owners of a company. They own shares in the company which entitle them to receive a percentage of the company’s profits. Most shareholders also have a say in important company issues, such as the appointment of new directors.

A shareholder in a company can be a person, a group of people, a partnership, another company or any other kind of legal entity or corporate body.

The law requires that a private company which is limited by shares must be incorporated by at least one shareholder. There is no maximum limit, however, to how many shareholders a company may have.

Is a shareholder the same as a director?

No. A shareholder owns a proportion of a company through the purchase or acquisition of shares in that company. In contrast to this, a director is someone who is appointed by those shareholders in the company to manage its operational activities.

A shareholder in a company, however, can also be a director. In other words, the two positions are still different but one person can hold both positions. This is very common in small companies and start-ups. In many such companies just one person will assume the role of sole shareholder and sole director.

What are shares?

A share is a single unit of ownership in a company. Each unit represents a certain percentage of the company’s capital; somewhat as a slice of a cake represents a certain proportion of it. Anyone who owns a share – or a number of shares – in a limited company is called a “shareholder” or “member” of the company.

The two most common types of shares are “ordinary” shares and “preference” shares. One may create and issue any type of share that one wishes, whether that is during or after company incorporation. Most companies issue ordinary shares of equal value, which provide members with equal voting rights and equal profit rights per share.

What are ordinary shares?

Ordinary shares are the most common type of shares and most companies registered within Great Britain use ordinary shares in British pounds (GBP / pounds sterling). Ordinary shares give a shareholder the following rights:

  • One vote per share on company decisions.
  • Receive a share of profits as dividend payments.
  • Receive a share of capital, for example if the business closes down.

The minimum number of shares that a company can issue is one. This is common when someone is setting up a limited company as the sole owner and director. The Companies Act 2006 does not provide an upper limit, so one may issue as many shares as one wishes.

Value of a share

Shares have a nominal value and a market value. The nominal value, which is usually £1 (although this can be set at any value), is the minimum amount a member can pay, or agrees to pay, in order to acquire ownership of a single share. This is also the sum that the shareholder or member is legally required to pay toward company debts or to contribute when the business is wound up. This nominal value represents the “limited liability” of a company’s owners.

The market value of a share is how much it is worth when it is sold. This will often vary from the nominal value.

Our limited company formation packages allow you to set up a limited company with a single shareholder or multiple shareholders and with either a single class of shares or more than one class of shares.

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