Before starting a new company you must be prepared to undergo thorough research — familiarising yourself with crucial terms in the business glossary. The more you know, the more informed your decisions. And one such term is the “aggregate nominal value” — an important term in relation to company shares.
Before we look at the aggregate nominal value, it’s important to comprehend the structures of company shares.
The Definition of Shares
Shares are a “portion” of a company that is limited by shares and is simply a divided-up unit of the value of a company (each share is a specific percentage of the entire business). The shares owned by individuals of a shareholding company are called “shareholders” or “members”.
How much of a company is owned or controlled by a member is reflected in the number of shares that the member holds. Typically, shareholders receive a percentage of trading profits in relation to their ownership percentage.
How Many Shares Can be Issued by a Company?
One (1) is the minimum number of shares that a company may issue. This is normal when an individual sets up a limited company and is the sole owner and director. There is no upper threshold, therefore you may issue as many shares as you deem necessary during the company incorporation process or after your company has been formed.
Here are some fairly straightforward 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.
So, if a business has a £100 million worth, and there are 50 million shares, then each share is worth £2 (normally listed as 200p). Those shares can fluctuate in value for a number of reasons.
Companies issue shares in order to raise money. Subsequently, investors purchase company shares believing that the company will be a profitable success and they can subsequently have “their share” of the success.
The Value of Shares
Shares have both a market and nominal value — the difference between each is known as a “premium”.
A share’s market value is simply the amount it is worth at the point of being sold. This figure will invariably differ from the nominal value.
The nominal value of a share, which is typically £1, is the sum that a member has either paid or agreed to pay for their segment/portion of the company. This sum is the reflection of how much a member would legally need to pay towards company debts or when the company suffers a winding up order. Therefore, the “limited liability” of a company’s owners is reflected in the nominal value.
A Statement of Capital Requests an Aggregate Nominal Value
A statement of capital is an official form detailing a company’s issued shares and their status at a specific date. It must be completed during company incorporation and on the date of an annual confirmation statement (find out more about the certificate of incorporation). The statement of capital essentially provides a summary of shares issued and also the rights that come with the different share types and the denomination and currency of those shares.
The statement of capital was introduced on 1 October 2009 as part of the changes implemented by the Companies Act 2006, and comprehensively replaced the previous system whereby there was an upper limit to the number of shares (“authorised share capital”) which could be issued.
The aggregate nominal value must be included in a statement of capital.
What Is the Aggregate Nominal Value?
The Companies Act 2006, as amended by the Small Business, Enterprise and Employment Act 2015 details the contents of the statement of capital. Any electronic or paper submission of the statement of capital must disclose the aggregate nominal value to Companies House.
The aggregate nominal value of the company’s shares is calculated by multiplying the number of shares in issue by the nominal value of each share. If there are multiple share classes, then each class has to be calculated with the figures subsequently added together.
Company X Limited has two classes of shares: Ordinary £1 and Preference £0.10 shares.
There are 100 of the Ordinary shares in issue, so the aggregate nominal value of this class is 100 x £1 = £100.
There are 10 of the Preference shares in issue, giving a total nominal value for the class of 10 x £0.10 = £1.
Therefore, £101 is the aggregate nominal value that has to be reported in the statement of capital.
Essentially, the aggregate nominal value of shares is the nominal value of each share multiplied by the number of shares issued.
What Else Is Included in the Statement of Capital?
Along with the aggregate nominal value, a statement of capital should include:
- The total number of issued company shares.
- The total nominal value of the company shares.
- The share class or, in the case of different types, the share classes. These will normally be ordinary shares, if not, a breakdown of each share type and the aggregate nominal value of the shares in each class is required.
- Details of amounts paid to be paid on each share
- Any prescribed rights that are attached to each class of share.
- Confirm in which currency the share value is held.
The aggregate nominal value of shares is an important calculation that you need to document on the statement of capital. However, other classes, such as preference shares, can have different nominal values, from 1p to £100.
Although an understanding of the aggregate nominal value of shares will help you complete a statement of capital, it’s important to familiarise yourself with all of the document’s requirements. In fact, making a habit of continual learning will nullify potential hindrances along your company’s journey.
To find out more about an aggregate nominal value of shares, and for any assistance with share-related issues, contact Your Company Formations, today.