A Guide to Limited Company Shares and Shareholders | 1st Formations?

Class B mutual fund shares are seen to be a good investment if investors have less cash and a longer time horizon . To avoid the exit fee, an investor should typically remain in the fund for five to eight years.

Can you sell Class B common stock?

Investors purchasing Class B shares may instead pay a fee when selling their shares, but the fee may be waived when holding the shares five years or longer . In addition, Class B shares may convert to Class A shares if held long term.

What are Class B shares good for?

Commonly, Class B shares are held by promoters or senior management of a company and carry significantly higher voting rights than Class A shares. It effectively allows firms to raise capital (by selling Class A shares) while retaining control of voting (and retaining Class B shares) .

Why would a company issue Class B shares?

For example, a company may have Class A shares that trade for hundreds of thousands of dollars. The company may then issue Class B shares at a much lower price since many investors will not be able to afford a Class A share . This makes investing in the company much more accessible.

How much are B shares worth?

The nominal value and redemption price of each B Share is 0.1 pence . Therefore 1,000 B Shares are worth £1. In total, the B Shares issued to you had a value equal to the cash dividend the directors would have recommended be paid to you if dividend arrangements were in place.

A Guide to Limited Company Shares and Shareholders

Shareholders

What is a shareholder?

This is the name given to anyone who owns ‘shares’ in a company limited by shares. As a shareholder, you own part of a company in relation to the proportion of shares you hold. A company can have just one shareholder or many shareholders. Each one is entitled to receive a portion of profits in relation to the number and value of their shares.

Shareholders are commonly referred to as 'members'. The first members in a company - the people who register the business and agree to become members - are also known as 'subscribers' because they subscribe their names to the memorandum of association during the company formation process.

Can anyone be a shareholder?

Yes, any person or corporate body (company, firm, organisation etc.) can be a shareholder of a private company limited by shares.

What is the minimum number of shareholders required to register a limited company?

Companies House requires at least one shareholder to incorporate a private company limited by shares. There is no maximum number of shareholders a company can have.

Is a shareholder the same as a director?

No. A shareholder owns a company through the purchase or acquisition of shares. A director is appointed by those shareholders to manage the operational activities of a company.

However, a shareholder can also be a director. This is very common in small companies and start-ups. In many cases, just one person will assume the role of sole shareholder and sole director.

Similar to director information, some shareholder information does appear on the public register.

What does a shareholder do?

Shareholders own shares in a company. The ‘nominal’ value of their shares is the amount they are liable to pay toward business debts.

Shareholders receive a portion of company profits in relation to the number and value of their shares.

They are not responsible for the day-to-day activities of the business unless they are also directors. Company owners will only make decisions about significant matters such as changing the name of the business, appointing, or removing directors, changing directors’ powers and altering the articles of association.

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What are shares?

A share is a piece of a company limited by shares. Each piece represents a certain percentage of the company. Anyone who owns shares in a limited company is called a 'shareholder' or 'member'.

The number of shares held by each member determines how much of the company they own and control. They normally receive a percentage of trading profits that correlates with their percentage of ownership.

Here are some simple examples of popular share structures:

One issued share = 100% ownership of the company.
Two of equal value = 50% ownership per share.
10 of equal value = 10% ownership per share.
100 of equal value = 1% ownership per share.

How many shares can a company issue?

The minimum quantity 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 you can issue as many shares as you like, either during or after the incorporation process.

Can I issue different types of shares?

You can create and issue any type of shares you like, 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. Alternatively, companies can issue multiple types ('classes') and values of shares to provide members with different voting and profit rights.

How much is a share worth?

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 agrees to pay to take up a single share. The total nominal value of members' shares is the sum they are legally required to pay towards company debts when the business is wound up. Therefore, it represents the limit of a member's liability.
The market value of a share is the amount it is worth when it is sold. This will often vary from the nominal value.

The difference between the nominal value and market value is known as the share ‘premium’.

How do I register a limited company with multiple share classes?

Our sister website, Quality Company Formations, provides a specialist Multiple Share Class Package for anyone who wishes to set up a limited company with multiple share classes.

This package will also allow you to upload bespoke articles of association, as opposed to adopting Model articles from Companies House.

The incorporation process will typically take up to 24 hours to complete, and your new company will be ready to trade as soon as it is approved by Companies House.

Ready for more? Explore our blogs.

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A Guide to Limited Company Shares and Shareholders | 1st Formations (2024)