Who can be a shareholder?
There are no restrictions on who can be a shareholder in a limited company. However, because of the power they have in a company it is worth thinking about who your shareholders are going to be and how many votes they will have on key decisions.
What do Shareholders do?
Limited company shareholders are the people who own a company. In company law they are often referred to as the ‘members’ of the company. As a minimum you need one shareholder but you can have as many as you like. Because shareholders own the company they have a lot of power; they can vote on key company decisions such as hiring and firing company directors, how much the directors will get paid and whether the company is sold or merges with another. How many votes individual shareholders have will depends on the types of shares they have, the number of shares they own and the rules set out in the Memorandum and Articles of Association.
Shareholders can be given their shares or can buy them. Often key employees will be rewarded with shares or - like on Dragon’s Den - they will be given in exchange for an investment in the company. A standard limited company is officially a Private Company Limited by Shares. The ‘private’ part means that you cannot put the shares on public sale; you can’t list them on the stock market or otherwise advertise them for general sale although you can make private sales to individuals. The exact method for doing this should be laid out in the company’s Articles of Association but it often requires a vote by the other shareholders to approve a sale.
If the worst happens and your company goes bust, the shareholders will be held liable for the company’s debts. However with a Company Limited by Shares the amount of debt that the shareholders are liable for is limited by the value of the shares they have. So, for instance, if a shareholder has 100 shares worth £1 each they will be liable for company debts up to £100 (although in practice these debts should be covered by the assets of the company anyway).
A key way for people involved in limited companies to pay themselves is through dividends. These are shares of the company’s profits which are issued to shareholders. Dividends are taxed at a relatively low rate (generally around 10%) and so they are considered to be a tax efficient way of taking money from a business. To receive dividends you have to be a shareholder of the company.
At least 1 shareholder has to be appointed when a company is formed but it is common to add additional shareholders as the business grows. This may be done in exchange for an investment in the company or to reward key members of staff. Appointing new shareholders is a fairly straightforward process and just requires a small amount of paperwork to be done to reflect the new share structure of the business. If you need to add, remove or adjust the shareholders in your company give our business consultants a call on 0800 0828 727 and they will be able to talk you through the process and give you a quote for doing the work.