A shareholder (‘member’) is an individual person or corporate body that holds shares in a company limited by shares. As a shareholder, your shareholdings represent the percentage of the business that you own and control. The bigger your shareholding, the more company profits you are entitled to, and the greater control you have in the company.
Key Takeaways
- Shareholders influence company decisions by voting on key issues like director appointments and financial approvals.
- Limited liability protects shareholders, capping their financial obligation to the nominal value of their shares.
- Companies can issue various share classes, allowing flexibility in voting rights and dividend distributions for shareholders.
What do shareholders do?
Generally, shareholders do not do anything on a day-to-day basis, unless they are also directors of the company. However, they are required to take certain important decisions on the business, which involves casting votes to pass ordinary or special resolutions at general meetings or in writing.
The most common types of decisions taken by shareholders include:
- choosing which powers to grant to the director(s)
- appointing and removing directors
- setting directors’ salaries
- altering the company’s constitution
- changing the name of the company
- checking and approving the company’s financial statements and accounts
- any other matters that are beyond the scope of the directors’ powers
In addition to these decision-making powers, shareholders are normally entitled to dividends if the business makes a profit. Dividend payments are worked out in relation to the quantity and value of shares held by each member. Usually, they also have the right to distributions of the company’s assets if it is would up.
Liability of shareholders
The ‘nominal’ value of members’ shares represents the amount of money they are liable to contribute towards the debts of a company. This sum is the absolute most that a shareholder is legally obliged to pay to the company is the business gets into financial difficultly.
Most shareholders pay for their shares as soon as they are issued or transferred to them. In such instances, the shareholder has no further financial obligation to the company. If the nominal value of any shares remains unpaid or partially paid, the shareholder must pay this sum when requested to do so.
Who can be a shareholder?
In accordance with the Companies Act 2006, any person or corporate entity can be a shareholder of a limited company. A shareholder can be of any age and can be based anywhere in the world. It is common for company directors to be shareholders.
While most shareholders are individual people, it is commonplace for shares to be issued to corporate bodies (i.e., other companies), especially where there is a group of companies or a parent company with a subsidiary.
How many shareholders can a company have?
Companies limited by shares must have a minimum of one shareholder, but there is no maximum number unless specific provisions are added to the company’s articles of association or shareholders’ agreement.
Are shareholders the same as directors?
Shareholders are not the same as directors. A shareholder owns all or part of a company through the acquisition or purchase or shares. A director is appointed by shareholders to oversee day-to-day business operations on their behalf.
Typically, however, shareholders are also directors of their own companies. This is especially common in small companies that are set up by just one or two individuals.
Is there a limit to how many shares a company can issue?
Most limited by shares companies are required to issue a minimum of one share. There is no limit to the maximum number of shares that a company can issue unless specific restrictions are included as a provision in the articles of association. This particular provision is called ‘authorised share capital’.
Older companies that were registered under the Companies Act 1985 were restricted on the number of shares they could issue. This was because the provision of ‘authorised share capital’ was included in the company’s memorandum. Members now have the power to remove or alter this restriction by adopting a new set of articles of association.
Are there different types of shares?
There are many different types (classes) of company shares. Most companies issue ‘Ordinary’ shares, which provide equal rights to all members, including voting rights, dividend rights, and capital rights.
Sometimes, however, companies issue different classes of shares in order to vary the rights of members, for example, additional voting rights or different rates of dividends. To issue any type of share other than Ordinary, the company’s articles must provide for multiple classes of shares.
Model articles of association are only suitable for companies with Ordinary shares, so you will need to alter them accordingly or create bespoke articles if you wish to issue any class of share other than Ordinary.
How much are shares worth?
Each share has a ‘nominal’ value and a ‘market’ value. The nominal value, which is typically £1.00, is the amount assigned to the share when it is issued by the company. The nominal value of shares also represents the limited liability of members – i.e., the amount of money they have to pay to the company when requested to do so.
The market value, on the other hand, is the amount that the share is currently worth if it were to be sold. Sometimes referred to as the ‘real value’, this will fluctuate over time in accordance with the company’s own success and the wider economy in general.
The difference between the market value and the nominal value of a share is known as the share ‘premium’.
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