Companies limited by shares need to issue a minimum of one share during the company formation process Companies with at least one shareholder must issue a minimum of a share per shareholder.
A general question in the company formation world is – what is the total number of shares I need to issue while setting up my limited company?
One single share must be issued when a private limited company is incorporated with Companies House. There is no limitation to the number of shares a company can issue during or after incorporation, except there is a provision of authorised share capital stated in the articles of association. This is a voluntary clause that shareholders can incorporate to limit the total number of shares the company can issue. Besides these two rules, there is no fixed number of shares to issue. However, it depends solely on the preference of the original shareholders as well as the versatility they desire to have for selling shares to external investors at a later stage.
Must I issue above a share per shareholder?
Companies having one shareholder will habitually issue just one share, therefore owning 100% of the business with just one share. However, this makes it more complicated to bring in outside investors in the future as it is impossible to break up one share that is worth 100% of the company.
Rather, you would have to develop new shares should you desire to sell shares to others. A better option is to issue an even number of shares when your company was registered – two, ten, fifty, hundred etc. This gives you the option of transferring existing shares to other individuals in exchange for capital, if and when needed.
It is important to note that shareholders need to pay the nominal (small) shares value of £1, in the event that the business runs into financial trouble, or it is dissolved. Consequently, the more shares you issue, the higher the financial responsibility of the shareholders.
The recommended number of shares
This depends on the situation of every company, though a good solution adopted by several companies is to issue 100 shares since each share will correspond to 1% of the company. This makes it easier to work out how much of the company is owned by individual shareholders, and how much control they have in the business, while also restricting their financial liability to a realistic sum. Besides, 100 shares permit a company to generate more capital by selling smaller portions of ownership to several individuals, rather than selling large chunks of ownership to only some people.
The issuing of 100 shares likewise has a historical impact. Before the Companies Act 2006 was introduced, limited companies were expected to include authorised share capital in their articles. This determined the exact Stamp Duty a company will have to pay upon incorporation. 100 shares were the favourite limit because it limits the Stamp Duty payment while permitting them to issue a realistic number of shares during or after company formation. Presently, Stamp Duty on shares is only payable to HMRC should the paper share sale’s value transfer exceed £1000.
At what time are shares needed to be paid for?
It is not mandated that shareholders pay for their shares except if the company is wound up or goes into bankruptcy. Though, as the majority of shares are issued to raise capital, most shares are paid for when they are granted. Any payment for shares should be made into the company’s own funds, depending on the payment method, and this should be recorded in the company’s financial records. Payment for shares can be made in non-cash or cash payments.
Should the company be wound up, shareholders are accountable to pay the shares’ nominal value. Also, should the shares have been paid for, no extra payments are due. Furthermore, where shares are not paid at the time a company is wound up, then the shares nominal value should be paid by the shareholders.