A shareholder is an individual or corporate body that owns shares (i.e., stakes; stocks) in a public or private company limited by shares. They may also be referred to as subscribers, members, stakeholders, stockholders, or company owners.
By taking one or more shares issued by a company, a shareholder becomes an equity owner of that business. They are entitled to a portion of the profits and a say in how the company is run, relative to their percentage of ownership.
Almost any individual person, group of people, or corporate body (e.g., a company, organisation, partnership, etc) can be a shareholder, assuming there are no specific restrictions stated in the company’s articles of association.
To set up a private company limited by shares, only one shareholder is required. However, you can choose to set up a company with as many shareholders as you wish, and you have the option to bring in more members after incorporation. There is no limit, unless you include a specific restriction within the articles.
Public limited companies (PLCs), on the other hand, must have at least two shareholders.
Shareholders and directors have entirely different roles. A shareholder owns all or part of a company by taking at least one share, whereas a director manages a company on behalf of the shareholder(s). However, it’s common for the same person to be both a shareholder and director in a company.
Whilst directors deal with everyday responsibilities and decision making, shareholders have ultimate control, making decisions on significant company matters and receiving a ‘share’ of any profit.
Yes, a shareholder can also be a director of a limited company, on condition that the individual is at least 16 years old and is not prohibited under the restrictions of director disqualification, bankruptcy, a Debt Relief Order, or any provision stated in the company’s articles of association.
A share is a unit of ownership in a company limited by shares. Each share is owned by one or more shareholders (members) and represents a percentage of the company. For example, if only one share is issued, it represents 100% ownership of the company. If two shares of equal value are issued, each one represents 50% ownership of the company.
To set up a private company limited by shares, you only need to issue one share per shareholder. For example, if you register a company with one shareholder, you must issue at least one share; if you form a company with two shareholders, you will need to issue at least two shares.
There is no statutory restriction to the maximum number of shares you can issue during company formation or afterward, unless you include a limit within the articles.
Most companies only have one type (class) of share, known as ‘ordinary’ shares. Typically, ordinary shares are of equal value and carry equal dividend rights and voting rights. However, other types of shares do exist, including alphabet, preference, redeemable, non-voting, and management shares.
A share has a nominal (par) value and a market (actual) value. The nominal value is an arbitrary, static sum (usually £1 or less) assigned to a share at the time of its issue. It is the amount the shareholder agrees to pay for that share. The market value is the current market price at which a share can be traded, which fluctuates continuously due to various market factors.
A company can issue more shares after incorporation, subject to any restrictions in the articles of association. Some companies include certain provisions in their articles to restrict the number and/or classes (types) of shares that may be issued, in addition to restricting directors’ powers to authorise changes to share capital without shareholder approval.
Generally, directors can pass a resolution to issue more shares after incorporation. However, some articles of association and shareholders’ agreements may require directors to obtain shareholder approval before new shares can be allotted (issued). There may also be other restrictions in place, such as pre-emption rights.
Once the allotment has been made, you must file form SH01 at Companies House within one month of the share(s) being issued. This can be done online. Additionally, you will need to update the company’s register of shareholders accordingly.
Company shares can be transferred (either sold or gifted) after incorporation, on condition that the transfer is in accordance with the articles of association and any shareholders’ agreement that may exist. Typically, share transfers are approved by the directors. A Stock Transfer Form must be completed, and the transfer reported on the next confirmation statement.
Provided that it is solvent, a company can reduce the number of shares it has by carrying out a share capital reduction. Typically, directors will propose a reduction by signing a solvency statement. Members will then approve the reduction by passing a special resolution.
Shareholders are personally responsible for company debts up to the par (nominal) value of the shares they own. This is known as ‘limited liability’ – a legal status that limits a shareholder’s financial liability to a fixed amount. Typically, companies assign a par value of £1 to each share, but you can choose any sum.
Debt beyond the liability of shareholders is the responsibility of the company itself unless any shareholders or directors have also provided a personal guarantee to the company or any of its creditors.
Essentially, shareholders are the beneficial owners of a limited company, because they own shares in the company. Depending on the prescribed particulars (rights) attached to their shares, they have a right to dividends (profit from shares) and/or the right to make certain decisions on behalf of the company.