Limited companies – what is share capital?

So, what is shared capital within a limited company? Well, the easiest way to explain it is that it is the amount of money that is invested by the business owners which are exchanged for shares of ownership, typically the Company Directors will be shareholders in their business.

These Company Directors / Shareholders then have the power to direct how the business is run.

Share capital within a Limited Company

  • Every Limited Company will be limited by shares and therefore must have at least one share. You will find that smaller limited companies tend to have ordinary £1 shares.
  • With the Companies Act 2006, all new limited companies now don’t have to specify their total share capital. Although, they do have to deposit an initial statement of capital, or a statement of guarantee which will be updated when any new shares are issued out.
  • All existing companies will have to amend their Articles of Association if they want to allot shares beyond the ‘authorised share capital’ which was stated upon their incorporation.
  • When you hear about the ‘issued share capital’ of a limited company this will be the total value of shares in issue.
  • The shares are apportioned out to shareholders upon The company can also allot shares to any new shareholders further down the line, subject to the terms of the Articles of Association and the board of the company will also need to agree. 

The various types of shares

Limited Companies can use 4 different types of shares. These are as follows:

  • Ordinary shares are types of shares will have no special rights or restrictions. They can be sub-divided into ordinary shares with varying values.
  • Preference shares are when shareholders are paid annual dividends by the company. These are paid out before other shareholders are paid their share.
  • Cumulative preference shares are very similar to the above with the only difference is that the company can carry forward dividend payments if they cannot be made in one given year.
  • Redeemable shares are shares which are issued with the condition that the company will have the chance to purchase them back after a period of time has elapsed.

Transferring and allocating shares

  • When someone decides to form a company, they will need to complete a Statement of Capital. This will provide Companies House with the details of the types of share that are in issue, rights that are associated with each class of share, any information about the current shareholders, the number of shares that are ‘paid’ or ‘unpaid’ and lastly the currency that the company are using.
  • If you decide to make any changes to the share capital of your company, you then have to provide an updated Statement of Capital.
  • If you decide to deduct the number of shares that are in issue, you will need to complete Companies House Form SH19 (section 644 and 649).
  • If your company decides to allocate new shares, you will have to complete Companies House Form SH01 and this will be subject to your board’s approval and the information needs to be submitted within one calendar month of the new allocation.
  • Your Statement of Capital will form part of your Confirmation Statement which all companies must complete each year.
  • If you decide to sell or transfer shares in your company, you need to consult your accountant, as there could be tax implications involved.
  • If a shareholder decides to transfer their shares, they have to complete a Stock Transfer Form and then return their share certificates.
  • The register of members will then be required to be updated with the new After this has been done the new share certificates can be issued to the shareholder.