Understanding share structures is crucial for a UK Limited Company as it directly impacts the distribution of power and control within the organization. The share structure determines who has voting rights and how decisions are made, which can significantly affect the company’s strategic direction.
In a UK Limited Company, share structures are categorized into several types. The most common type is ordinary shares. These are the standard form of shares, which carry one vote per share and come with the right to dividends and the distribution of assets if the company is wound up.
Another type is preference shares. These shares give the holder the right to a fixed dividend, but they usually do not carry voting rights. The dividends for preference shareholders are paid before ordinary shareholders. In the event of a company being wound up, preference shareholders are also paid before ordinary shareholders.
Then there are cumulative preference shares. If a company is unable to pay a dividend in one year, these shares allow the dividends to be accumulated and paid in the future when the company has enough profits.
Redeemable shares are also a type of share structure in a UK Limited Company. These shares are issued on the terms that the company can buy them back at a future date, which is a decision that can be made at the company’s discretion.
Lastly, there are non-voting shares. As the name suggests, these shares do not carry any voting rights. They are often issued to employees or family members to provide them with a share of the profits, but without giving them a say in the company’s decisions.
Setting up a share structure in a UK Limited Company
Setting up a share structure in a UK Limited Company begins with deciding on the type of shares to be issued. There are different types of shares that a company can issue, such as ordinary shares, preference shares, and redeemable shares. Ordinary shares are the most common type and carry one vote per share, while preference shares often carry a fixed dividend but may not carry voting rights. Redeemable shares can be bought back by the company at a later date.
The next step is determining the number of shares to be issued. This is a crucial decision as it can impact the company’s ability to raise capital and its control structure. The number of shares can be any number that the founders deem appropriate. However, it’s common for new companies to start with a small number of shares, such as 100, which makes it easy to understand the percentage ownership each shareholder has.
Once the type and number of shares have been decided, the company must assign a nominal value to each share. This is the ‘face value’ of the shares and is typically set at a low value, such as £1. The nominal value is important because it is the minimum amount that must be paid for each share.
Subsequently, the company needs to decide on the rights attached to each type of share. These rights can include voting rights, dividend rights, and rights to the company’s assets if it is wound up. The rights attached to each type of share are typically outlined in the company’s articles of association.
Finally, the company must record all the details about its share structure in its statement of capital. This includes the total number of shares, the aggregate nominal value of those shares, and the amount paid up and unpaid on each share. The statement of capital is a part of the company’s registration documents that are submitted to Companies House.