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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