When you incorporate a limited company in the UK, one of the first decisions you make is how to structure the company's share capital. Share capital is the total value of shares that the company issues to its shareholders. Getting this right from the start avoids costly restructuring later and forms the foundation of the company's ownership. This guide explains the essential concepts in plain English.
What Is Share Capital?
Share capital is the total nominal (face) value of shares that a company has issued to shareholders. When you form a company, you decide how many shares to issue and at what nominal value. The most common arrangement for a simple owner-managed company is to issue one ordinary share at a nominal value of £1, giving a total share capital of £1.
The nominal value of a share is not the same as its actual market value or the price at which it is sold. A share with a nominal value of £1 could be worth far more (or less) depending on the company's trading performance and net asset position.
Shares can also be issued at a premium above their nominal value. The excess over nominal value is recorded as a "share premium" in the company's accounts.
Issued vs Authorised Share Capital
Under the Companies Act 2006, there is no concept of "authorised share capital" for companies incorporated after 1 October 2009. Companies incorporated under older legislation may still have an authorised capital limit in their Articles, but this can be removed by shareholder resolution.
For modern companies, the only relevant figure is "issued share capital" — the shares actually issued and allotted to shareholders. You can issue more shares at any time (subject to your Articles and pre-emption rights) without needing to increase an authorised cap.
Share Classes: Ordinary and Beyond
The simplest structure is a single class of ordinary shares, each carrying equal rights to vote, receive dividends, and share in the company's assets on a winding up. For many small businesses, this is perfectly adequate.
More complex structures use multiple share classes to give different rights to different shareholders. Common examples include:
- Ordinary A and B shares: Often used in family companies to allow different dividend allocations to different family members in a tax-efficient way
- Preference shares: Carry a fixed dividend paid before ordinary shareholders and/or priority in a winding up — often used in venture capital investment rounds
- Non-voting shares: Hold economic rights (dividends and capital) but no voting rights — sometimes given to employees or passive investors
- Redeemable shares: Can be bought back by the company at a future date under agreed terms
Transferring and Issuing New Shares
Existing shares can be transferred from one person to another by a stock transfer form (STJ30). The transfer must be recorded in the company's register of members and, where applicable, Stamp Duty paid (0.5% of the consideration if over £1,000).
New shares can be issued to new or existing shareholders by a board resolution allotting the shares and updating the register of members and notifying Companies House via a SH01 form within one month of the allotment. Pre-emption rights — the right of existing shareholders to be offered new shares proportionally before they are offered to outside parties — apply under the Companies Act unless disapplied by the Articles or a shareholder resolution.
Frequently Asked Questions
How many shares should I issue when forming my company?
For a simple owner-managed company, issuing 1 ordinary share at £1 (or 100 shares at £1 each for more flexibility) is perfectly adequate. If you plan to bring in a co-founder or investors, issuing 100 or 1,000 shares makes it easier to allocate percentages without dealing in fractions.
Can I issue shares without receiving payment?
Generally, shares must be paid up at least to their nominal value before being issued. Issuing shares for less than their nominal value (at a discount) is prohibited. Shares can be issued in exchange for non-cash consideration (such as services, IP, or equipment) but this must be properly valued and documented.
What is a Person of Significant Control (PSC)?
A PSC is an individual (or legal entity) that holds more than 25% of shares or voting rights, has the right to appoint or remove a majority of the board, or otherwise exercises significant influence or control over the company. PSCs must be identified and entered on the company's PSC register, which is filed at Companies House.
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