Top Things to Remember while you Bring in Shareholders to Your Company

Are you about to start a private company limited by shares but is not sure about the number of shareholders you need to come with while incorporating it?

The private companies limited by shares need to come with at least one shareholder while incorporating business. However, no limitations are imposed on the maximum number of shareholders a company can come with at the time of incorporation. There aren’t any limitations imposed on the number of shareholders after the company is incorporated, either.

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What is the Role Played by the Company Shareholders?

The role of company shareholders is to support companies financially by investing in it. The shareholders are also required to perform a few specific tasks like taking a few major decisions that can influence the Director of the company.

The company shareholders are beneficial owners, investing money in companies in lieu of equity shares. This allows the company shareholders to vote on the direction as well as management of the business. They receive a portion of profits depending upon the ownership percentage. The company shareholders are also responsible for contributing the value of shares in case the company is unable to pay the creditors. There are several small companies that are owned by only one shareholder; companies can have multiple Directors and shareholders too; they may or may not be the same people.

How to Add a New Shareholder?

The private limited companies can add shareholders after the incorporation. For doing this, the existing shares need to be sold or transferred by current shareholders to the new shareholders. Companies can increase the share capital by issuing new shares.

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Creating More Shares

If you want to create more shares, you need to increase the company’s issued share capital. In this case, you need to complete the Companies House Form SH01 including the following details.

  • Name of the company
  • Allotment date
  • Registration number of the company
  • Details of the new shares that are being created
  • Amount paid for the shares
  • Nominal value of shares
  • Statement of capital
  • Non cash payment details of the shares
  • Signature of the Director of the company

Transferring Shares

For transferring ownership of issued shares, stock transfer forms need to be completed with the following details.

  • Company’s registered name
  • Value and class of the shares transferred
  • The number of shares being transferred
  • Name and contact details of the current shareholder
  • Stamp duty liability if money is being paid for the shares
  • Signature of the authorised person

The new shareholders will be issued a share certificate to prove ownership. The company needs to keep a copy of the old and new share certificates as well as the stock transfer form at its registered office or the alternate inspection location.

In case money is being paid for the transferred shares, a copy of the stock transfer form needs to be sent to the HMRC.

Before Issuing or Transferring New Shares

Check the articles of association of the company and the agreement of the shareholder before you transfer shares or create new shares. The articles may include a provision of authorised share capital that limits the value of shares of an organisation.

Make sure to find out if the Directors can allot or transfer new shares. In some cases, these decisions need the approval of the company shareholders. If this is your first experience of issuing or transferring new shares, it is better to speak with an accountant or a professional advisor.

How to Distribute Shares?

The best practice is distributing shares in accordance with the role of the individual in a given organisation. If you are the Director of the company, you can hold most of the shares and then distribute the rest of the shares to the individuals who are working in your business.

Here are a few things to take note of while you are allocating the shares.

  • You can allocate the ordinary shares to the spouses
  • Dividends paid to spouses must be income for them
  • Maintain a solid audit trail
  • Record the involvement of the shareholders in business
  • Approach dividend waivers with caution

How many Shares can the Company Shareholders Take?

Each shareholder must take at least one share in an organisation. There is nothing right or wrong in the number of shares taken in private limited companies.

If you have a plan to grow business or bring in new shareholders later, consider issuing more than one share while registering your company. This will allow you to sell some of your shares, saving you of the trouble of creating new shares later.

You can consider issuing shares in multiples of 10; this will make it easier to determine the percentage of ownership that is represented by each of these shares.

When a shareholder joins a company after the incorporation, you need to file Annual Return with the Companies House. Annual Returns are due yearly but you can file an Annual Return if you want the Companies House to know of this. Else, you can wait till it is time for the next return.

Contributed by https://www.companywizard.co.uk/

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