|An excerpt from Lawpack's Limited Company Formation Kit.|
A limited company consists of one or more shareholders who own shares. When a limited company is formed, it issues shares to its shareholders.
How are company shares paid for?
Company shares are paid for with money, property or services.
What is 'issued share capital'?
If, for example, shareholders applied for two shares and these were issued, you would say that the limited company had an issued share capital of £2.
Can the limited company accept cash for shares?
If limited company shares are to be allotted for cash, there are statutory rules governing the manner and timing of such an offer. These limited company rules state that company shares must be offered to existing shareholders, in proportion to their shareholdings.
If you, as company director of a limited company, want to exclude these rules (e.g. if you want to offer shares to a new shareholder) you should take legal advice.
Can company shares be issued at a higher price?
A limited company can issue shares at a price greater than their nominal value to bring more money into the limited company, while protecting the voting rights of existing shareholders and avoiding the procedures required to increase the authorised share capital of the company.
For example, £1 shares could be sold for £10 with the difference between the actual and nominal value of each company share (£10 – £1 = £9) being held in a separate account, known as a ‘share premium account'.
Remember that no private company is allowed to issue or cause to be issued any advertisement offering shares for sale to the public.
Are the limited company’s shareholders entitled to dividends?
Shareholders are entitled to any dividends declared by the limited company, plus a proportion of the limited company’s assets on dissolution.
How are the limited company’s shares paid for?
Company shares may be paid for, nil paid (unpaid) or partly paid for on issue.
If the company shares are partly paid for or nil paid, the limited company will be entitled to ask for the balance owed on each share and the shareholder must pay it.
What happens once the shares have been issued?
You must send Form SH01 (available to download when you purchase Lawpack's Limited Company Formation Kit) to Companies House.
What happens if the shareholders want to sell or give away their shares?
Shareholders may only transfer their stock in accordance with the Articles of Association. The limited company is obliged to offer the shares being transferred to the existing shareholders.
What if the company fails to find a purchaser for the shares?
If the company fails to find a purchaser among the existing shareholders within 28 days, it's usual for the selling shareholder to be free to sell his/her shares to outsiders (subject always to the limited company directors’ power to refuse to register a transfer of shares).
Does the stock transfer need to be registered?
When shares are transferred, a share transfer form must be completed and either stamped with the necessary stamp duty or, if the transfer falls within one of the exempt categories, the necessary certificate claiming exemption from stamp duty has been completed.
The limited company directors should approve the registration of any stock transfer.
Published on: October 11, 2010