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Shares and Share Capital

Shares are, at their most basic, small portions of a company that are used to divide up ownership. If a limited company has 10 shares all owned by one person, that person owns 100% of the company. If two people both own 5 shares, they will own half the company each. Simple, right?

Things get a little more complicated when you introduce share capital and share classes.

Share capital is the value of each share, and you must pay the total share capital to your limited company by the end of your first year’s trading – this is essentially you ‘buying’the company. So while it might be tempting to create 10,000 shares worth £1, this will mean £10,000 must be paid to your company after twelve months.

For single-director companies we recommend creating one share with a share capital of £1 – it may not be very glamorous, but it makes sense from an accounting point of view.

Should your company grow or another director come on board you can always issue more shares at a later date!

Share classes are typically used if company owners want to assign different rights to different groups of shareholders. For example, a company’s founders may issue themselves class A shares, which give them enhanced voting rights, while selling class B shares to investors. This allows them to remain in control of their company even if they sell the majority of their limited company to a third party.

Typically share classes are not required for new limited companies, and we do not offer the facility to define share classes when incorporating. However, different share classes can be formed subsequent to incorporation should they be required.

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