What Is Share Capital?

When setting up as a limited company (preferably through Paramount Company Formations), you will need to consider shares and how much value is attributed to them.

What is Share Capital?

The share capital in a private limited company is the amount of money invested by its owners in exchange for shares of ownership. In return for their investment, shareholders gain a share of the ownership of the company. As a company director, you will typically be a shareholder, and shareholders exercise power over how the company is run.

What Else Should be Noted About Share Capital?

• As share capital is the money invested in a company by the shareholders, it is a long-term source of finance and the amount of share capital a company has can therefore change over time.
• An example of what share capital is would be: If a company issued 5 shares at £1 each, the share capital of the company would be £5.
• If a company wishes to raise more equity, it can get authorisation to sell and issue shares, in turn this would increase share capital.
• Shareholders benefit from the protection offered by limited liability – they are only liable for the amount they invest in share capital rather than the overall debts of the company.
• Once investment is made, the company owns the money provided by a shareholder. The shareholder then gets a return on this investment through dividends, which are payments out of company profits.
• On registration of a company limited by shares, the shareholders must agree to take some, or all, of the shares in the company (all limited companies must have at least one shareholder detailed on the incorporation documents).
• Each share’s value indicates the amount the shareholder is liable to contribute (per share) if the company closes owing money.

How Does Share Capital Effect Limited Company Formation?

• All companies must have at least one share, which can just be the ordinary £1.00 share.
• According to the 2006 Companies Act, limited companies do not have to specify their share capital.
• ‘Issued share capital’ is the total value of shares in issue. This means that a company with 100 shares of £1 has an issued capital of £100.
• Upon incorporation shareholders are allotted their shares, additionally shareholders can join further down the line as well.

What Types of Shares Are There?

On top of needing to know about shares, you should also be aware of the different types of shares used by limited companies:

• Ordinary Shares – no special rights or restrictions.
• Preference Shares – shareholders will be paid annual dividends before other shareholders are paid.
• Cumulative Preference Shares – As above, however the company can carry forward the dividends payments if they can’t be paid in a given year.
• Redeemable Shares – shares are issued on the condition that the company can buy them back after a certain period.

What Do Paramount Do?

All our companies are formed with a nominal capital of £1,000. This means that your company will have the ability or power to issue up to £1,000 worth of shares. You do not have to pay this money to us or into a bank; it is simply the amount or value of shares the company could issue if it wanted to. It should be noted however, that the more shares you issue, the more you increase your liability. You need only issue one £1 share making your liability £1.

Next Steps

If you would like more information about share capital or you would like some guidance regarding company formations, contact us online or call us on 0800 0198 698.