You have lots of different options regarding how many shares you can issue when setting up a limited company. A minimum of one whole share must be issued during the company formation process. If you are registering a company with more than one shareholder (member), you must issue at least one whole share to each person.
There is no upper limit to the total quantity issued during or after incorporation, unless you include authorised capital in the articles of association. Prior to the Companies Act 2006 this was a mandatory clause for all companies, but has since become optional.
The quantity you choose to issue depends entirely upon the preference of the original members and the flexibility they wish to have for selling them to outside investors at a later stage.
Should I issue more than one share per shareholder?
Companies with just one owner will often issue just one share. This means that the person holding the one share owns 100% of the business. However, this makes it more complicated to bring in outside investors in the future because you cannot divide one share. You would have to issue new shares if you wanted to sell a part of your business to someone else.
A better option is to issue an even quantity like 2, 10, 50 or 100 during the company formation process. This will give you the option of selling existing shares to other people in exchange for capital, or gifting them to other people such as family members.
Please be aware: Members must pay the nominal value of their shares if the business is wound up, becomes insolvent, or is called up by the Directors. £1 is the usual nominal value chosen by most companies. Therefore, the more you issue, the bigger the financial liability of the owners.
How many is recommended?
It depends on the circumstances of each business. A good solution adopted by many companies is to issue 100 because each unit represents 1% of the firm. This makes it easy to work out how much of the business is owned and controlled by each member. It also limits their financial liability to a reasonable sum.
Furthermore, a quantity of 100 will allow you to sell smaller portions of ownership to more people, rather than selling large chunks of ownership to fewer people. This is a good way to raise additional capital for growing the business.
Historical significance of issuing 100 shares
Prior to the introduction of the Companies Act 2006, limited companies were legally required to include authorised share capital in their articles of association. This determined the Stamp Duty they had to pay to HMRC. 100 was the preferred limit because it was a sufficient and logical quantity and it restricted the Stamp Duty payment to an affordable amount. Stamp Duty is now only payable if the sale value of a transfer of shares exceeds £1000.
When do shares need to paid for?
There is no obligation to pay for shares unless the company is wound up or goes into liquidation. However, as most shares are issued to raise capital, it is common to pay for them when they are issued. Payment must be made into the company’s own funds, depending on the payment method. This must be recorded in the company’s accounts. Payments can be in cash or non-cash.
If the company is wound up, each member is liable to pay the nominal value of the shares. If they have already been paid for, no further payments are due. Where they are unpaid at the time a company is wound up, the nominal value must be paid. Alternatively, where company shares have been partly paid, Directors may resolve to call on the shares for additional amounts to be paid.