Shares and Share Capital

The following information has been complied based on the most frequently asked questions about shares and share capital for a Private Limited Company.

What is the "share capital"?
What is "authorised share capital"?
What is "Issued share capital"?
Is there a maximum and minimum share capital?
Can a company alter its authorised share capital?
Can a company alter its issued share capital?
Can a company reduce its issued capital?
What does the allotment of shares mean?
How do I allot shares in my new limited company?
What is the procedure to transfer existing shares to new investors?
How do I issue more shares?

 

What is the "share capital"?

Share capital is the investment in a company by its members (owners). The amount is contributed in exchange for the share of ownership, a certificate being issued for each share.

When a company is established, the people who form the company decide that the member's liability is limited to their contributed share capital. The memorandum of association for a company states the following in this regard:

• Total share capital of the company
• The division of share capital into shares of fixed amount. For example GBP1,000.00 divided into 1,000 GBP1.00 shares
• The names of the people who have agreed to own shares and the number of shares each will own. This is the issued share capital
• Those people who have agreed to take some or all of the company shares are called "Subscribers"

What is "authorised share capital"?

Authorised or nominal share capital is the maximum value of shares that can be distributed to existing or potential investors. Or, the amount of share capital stated in the memorandum of association is the company's 'authorised' or 'nominal' share capital. It is the total share capital available to the company.

What is "Issued share capital"?

Issued share capital is the number and value of shares issued from the total authorised share capital. For example, if a company has an authorised share capital of GBP1,000.00 divided into 1,000 shares of GBP1.00 and there are two subscribers only taking one GBP1.00 share each the total issued share capital is GBP2.00. In this example one issued share therefore represents a 50% ownership of the company. The remaining 998 shares are meaningless until issued; they are simply there for future expansion. Please note these rules only apply to Private Limited Companies (Ltd's), Public companies (PLC's) have different rules.

It is worth remembering that issued shares must be paid for at some stage, not necessarily immediately, bit in the future. If you decide to issue GBP1,000,000 shares to a subscriber then that person must pay the company GBP1,000,000 at some stage. For this reason most companies are formed with only one GBP1 share issued per subscriber (assuming all subscribers are equal owners of the company).

Is there a maximum and minimum share capital?

There is no minimum or maximum share capital requirement for a private limited company. But there must be at least one share of GBP00.01

Can A Company Alter Its Authorised Share Capital?

Yes, a company can alter its authorised share capital. In order to increase the authorised share capital, an ordinary resolution needs to be passed. A copy of this resolution and a notice of increase on Form 123 must be sent to Companies House within 15 days of being passed.

Similarly, company's authorised share capital can be decreased by passing an ordinary resolution to cancel all those shares which have not been taken or agreed to be taken by any person. Notice of cancellation of shares on Form 122 must be sent to Companies House within one month of this change.

Can a company alter its issued share capital?

A company may increase its issued capital by allotting more shares but only up to the maximum allowed by its authorised capital. Allotments must only be done under proper authority. However, a private company is normally restricted to issuing shares to its members, to staff and their families and to debenture holders. However, by private arrangement, the company may issue shares to anyone it chooses.

Can a company reduce its issued capital?

A company cannot normally reduce its issued capital as this is the personal property of the shareholders, not of the company. However, the following exceptions apply:
If a court order confirms a 'minute of reduction' following a special resolution of the company; If shares are redeemed (bought back) in accordance with a redemption contract; If the company's articles allow it to buy its own shares and this purchase is authorised by a special resolution. As a company cannot own its own shares, the shares are regarded as cancelled when the company buys them back.

What does the allotment of shares mean?

'Allotment' is the process by which people become members of a company. Once the subscribers agree to take shares on incorporation, these shares are regarded as 'allotted'.
Later, more people may become the members of the company and be allotted shares. However, the directors must not allot shares without the authority of the existing shareholders. This authority is either stated in the company's articles of association or is given to the directors by resolution passed at a general meeting of the company.

How do I allot shares in my new limited company?

If the company has been formed using nominees the pack we send you will include share transfer forms all partially completed. You simply need to enter the names of the new shareholders on the transfer forms and then issue the provided share certificates. The share transfer forms are retained by the company registrar as proof of transfer and the transaction is recorded in the Register of Members. Usually the company secretary or one of the company directors assumes the role of company registrar. You do not send the share transfer forms to Companies House.

What is the procedure to transfer existing shares to new investors?

The process for transferring shares to new or potential investors is simple. The existing shareholder has to fill out the relevant Stock Transfer Form and surrender their share certificates to the company registrar. The registrar will record the transaction in the Register of Members and issue a new share certificate duly authorised by the relevant signatures. The shares will officially be in the name of the new member only once the stock exchange transaction is recorded in the registrar. Usually the company secretary or one of the company directors assumes the role of company registrar. You do not send the share transfer forms to Companies House.

How do I issue more shares?

To transfer existing shares see the question above. If you wish to issue further shares up to the maximum permitted by the authorised share capital a form 88(2) should be completed and sent to the Registrar of Companies at Companies House. New shares can only be issued in accordance with the company's memorandum and articles of association which may include preemption rights protecting existing share holders. All new share issues must be recorded in the company's Register of Members.

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