Limited company shareholders – everything you need to know

Shareholders are the owners of a limited company. Also known as members and sometimes subscribers, these individuals (or corporate entities) invest money in a business in exchange for one or more shares, each representing a portion of ownership of the company. 

In return for their investment, limited company shareholders are usually entitled to vote on certain matters in the business, including its overall direction, and receive a proportionate share of company profits.

Shareholders are also responsible for paying any unpaid amounts on the issue price of their shares (which is normally just the nominal value) if the company ‘calls up’ outstanding share capital or cannot pay its creditors.

Many small companies are owned by just one shareholder, who is often also the sole director. However, companies can have multiple owners and directors who may or may not be the same people. It’s a very flexible business structure.

Shareholders, subscribers, members—what’s the difference?

We’ll get the semantics out of the way first. The terms ‘shareholder’, ‘subscriber’, and ‘member’ all refer to the individuals or corporate bodies who own shares in a limited company. However, these terms cannot be used interchangeably to describe all company owners. Let’s take a look at their meanings and the differences between each term.

What is a shareholder?

A shareholder is any individual person or legal entity (e.g. another company) that holds shares in a private or public company limited by shares. Shareholders are also known as members, but they are only referred to as subscribers if they join a company during its incorporation.

What is a subscriber?

The first shareholders in a company are called ‘subscribers’ because they subscribe (add) their names to the memorandum of association during the company registration process. 

By doing so, each subscriber agrees to form and become part of the business by taking at least one issued share.

Shareholders who join a company after incorporation are not subscribers. 

Who are the members of a company?

All limited company shareholders are members, regardless of whether they join the company during or after incorporation. 

If they hold more than 25% of the issued share capital or have more than 25% of the voting rights in the company, they will automatically become a ‘person with significant control’ (PSC).

Do company subscribers have more rights?

Company subscribers do not necessarily have more rights than other members who join the company after incorporation. 

The rights, powers, and obligations of members (including subscribers) are determined by their percentage of shareholdings or control in the company, the prescribed particulars of rights attached to their shares (in other words, the rights of the shares they hold), and the terms of any shareholders’ agreement that has been put in place.

Rights and responsibilities of limited company shareholders

Limited company shareholders are not involved in the day-to-day running of the business unless they are also appointed as directors. They will usually only make decisions on rare occasions, such as when directors have no authority to do so. 

What rights do shareholders have?

Shareholders’ rights are defined in the prescribed particulars attached to their shares, which must be in accordance with the Companies Act 2006.

The prescribed particulars of each share class should be outlined in the articles of association and any shareholders’ agreement that exists.

Typically, a limited company shareholder will have the following rights and responsibilities:

• Taking one or more shares in a limited company
• Agreeing to contribute the unpaid issue price of their shares if the company is unable to pay its creditors 
• Receiving company profits (dividends payments) or other distributions relative to the quantity and value of shares they hold
• Power to change the company name
• Power to change the company structure
• Authority to appoint and remove directors
• Granting rights and powers to company directors
• Issuing more shares after company registration
• Changing the rights attached to shares
• Approving substantial investments

Rights attached to ordinary shares

The majority of new companies issue ‘ordinary shares’. Each share carries equal rights, including the right to:

• Attend general meetings
• Cast one vote at general meetings
• Receive dividend payments (a share of business profits)
• Receive a distribution of remaining capital upon the winding up of the company
• Access statutory registers, in accordance with the Companies Act 2006
• Access the memorandum and articles of association

Shareholders’ rights become much more complex when companies issue multiple share classes. Carefully drafted articles or a shareholders’ agreement is crucial in such instances.

Rights of minority shareholders

Generally, minority shareholders (those owning less than 50% of a company’s issued share capital) have little control over the company’s management and direction. 

The collective power of their votes can be cancelled out by the voting power of majority shareholders. An official shareholders’ agreement is the most effective way to protect minority investors from this type of unfair monopoly.

Financial liability of shareholders

Limited company shareholders invest money in shares. In return, they will usually be entitled to receive a portion of the company’s post-tax profits whenever dividends are declared.

Their financial responsibility to the company is limited to the total issue price of their shares (the issue price normally being its nominal value). This ‘limited liability‘ means that shareholders don’t normally owe anything above the nominal value of their shares, so their personal assets are protected.

Legally, shareholders need only contribute the unpaid amount of the issue price of their shares towards company debts. If the business fails or cannot afford to pay its bills, the company itself is almost always responsible for these liabilities—not the shareholders.

Who can be a shareholder?

Unless a company includes provisions in its articles of association restricting who can and cannot hold shares, any person or corporate entity can be a shareholder in a private limited company.

There is no statutory minimum age requirement for shareholders, so it’s not uncommon for children to own shares in family businesses. However, many companies will only issue shares to people aged 18 or over since minors cannot enter into contracts or make legally binding decisions. 

Can a limited company shareholder also be a director?

Yes. Under the law, a shareholder can be appointed as a company director if they are at least 16 years old and not a disqualified director. Many companies are owned and managed by just one person, who is both the sole shareholder and sole director.

Can a company hold shares in another company?

A limited company shareholder can be an individual or a legal entity, such as another company or an LLP. Non-human shareholders are typically referred to as ‘corporate shareholders’.

A representative is appointed to act on behalf of the corporate body to attend general meetings, exercise voting rights, sign resolutions, and carry out any other shareholder duties. A director of the corporate body normally holds this position.

Benefits of a corporate shareholder

Established corporations that become members of another company can benefit smaller businesses because they often have greater resources, influence, and experience. We outline some examples below.

• They can provide capital to buy new equipment or to help the business grow.
• They often have established relationships with suppliers that can give small businesses greater bargaining power.
• Their involvement can positively influence other firms, investors and lenders to do business with a smaller company.
• They can offer valuable expertise in corporate governance and strategy, branding, market trends and research, legal matters, investment, sustainability, and economic growth.

Important points to note:

• If a corporate shareholder owns more than 50% of a company’s issued share capital, the corporate shareholder becomes the ‘parent’ (holding) company with majority control. The other company then becomes a subsidiary of the corporate shareholder.
• If you sell a large chunk of shares to a corporate shareholder, non-corporate shareholders with smaller shareholdings may be overpowered by the majority votes of the corporate shareholder.

Different types of shareholders 

Most private companies issue only ordinary shares, which means they have only one ‘type’ of shareholder—those owning ordinary shares and enjoying the same rights as each other. In this situation, each person’s level of control and profit entitlement is based on their percentage of shareholdings in the company. 

However, some companies issue different classes of shares, allowing them to vary their shareholders’ rights—typically voting, dividend, and capital distribution rights. 

Popular share classes include:

• Preference shares, which provide preferential rights over other share classes to dividends and capital distributions
• Management shares, which carry extra votes per share but no dividend rights
• Non-voting shares, which provide dividend entitlement but no rights to vote on company decisions

If you’re considering issuing multiple classes of shares in your limited company, we advise seeking professional advice beforehand. You’ll also need to update your articles of association accordingly and, ideally, draw up a private shareholders’ agreement.

Are shareholders’ details displayed on the public record?

In accordance with company disclosure rules, the names of all shareholders and the number of shares they hold appear on the central public register at Companies House.

Each subscriber must provide their full name and service address (contact/correspondence address) for Companies House during incorporation, as well as the number of shares they are to hold. After incorporation, they do not need to update their correspondence address.

The only time a shareholder must provide additional information to Companies House is when they are also a person with significant control (PSC). Here, additional information will need to be provided about that person, such as their nationality, home address and date of birth.

Can I add new shareholders after company registration?

Yes. New shareholders can join a limited company after incorporation in one of two ways:

• transferring existing shares from current shareholders 
• issuing and allotting shares to new members

‘Issuing and allotting’ shares means creating brand new shares and assigning them to the new shareholder(s). As long as the articles of association do not include a provision of authorised share capital, you can issue as many additional shares as you like. 

Transferring shares, on the other hand, means transferring existing shares from one shareholder to another. Of course, it requires that one or more existing shareholders be willing to transfer their shares.

In most cases, directors have the authority to issue new shares and approve share transfers, but it is possible for members to restrict directors’ powers in the articles.

The difference between directors and shareholders

A guide to limited company shares

Shareholder deadlock: What it is and how to prevent it

If the articles of association contain any provision preventing a director from authorising a transfer or allotment, they must follow the relevant procedure set out in the articles. A clause in the articles or a shareholders’ agreement may also provide ‘pre-emption rights’ to existing members.

Pre-emption is a ‘first-refusal’ clause that allows current members to take additional shares before the company offers them to outside investors. This protects their rights and prevents their proportion of ownership from unfair dilution.

Notifying Companies House about new shareholders

If you choose to transfer shares, you won’t have to provide Companies House with information about the new shareholders until your next confirmation statement is due. However, it is considered good practice to update this information as soon as possible.

If you allot more shares, you must complete form SH01 Return of Allotment and file it at Companies House within one month of the allotment. Again, there’s no legal requirement to provide new shareholders’ details until the next confirmation statement is due.

The directors must update the company’s statutory register of members as soon as possible with details of the new members. Furthermore, if any member holds more than 25% of the company’s issued share capital or has more than 25% control of the business, the directors will need to record the person’s details in the register of people with significant control (PSC register).

Within two months of becoming a member, new limited company shareholders should receive a share certificate as proof of ownership. The company should keep copies of all certificates and any stock transfer forms at the company’s registered office or Single Alternative Inspection Location (SAIL) address.

Do I need a shareholders’ agreement?

A shareholders’ agreement is a legally binding, private contract between a company’s members. It expands on the Companies Act 2006 and the articles of association, defining the specific rights and responsibilities of members and directors, how the business should be managed, and how certain decisions are made.

While a shareholders’ agreement is not a legal requirement, it is highly recommended for any limited company with more than one shareholder.

What is the purpose of a shareholders’ agreement?

This type of agreement is an effective way to ensure all members are equally protected and aware of their rights, restrictions, and obligations in all circumstances. The exact contents of an agreement can vary considerably from company to company, but the principal purpose of the document is to provide clarity and prevent conflict between shareholders.

Furthermore, a formal agreement protects the interests of minority shareholders against the potentially detrimental voting powers of majority shareholders.

The key issues often covered by a shareholders’ agreement are as follows:

• Distribution of company profits (dividends, directors loans, reinvestment in the company)
• Appointment and removal of directors and company secretaries
• Rights and restrictions of company directors
• Directors’ salaries and other forms of remuneration
• Prescribed particulars of rights attached to shares
• Procedures and restrictions for transferring and issuing shares, such as authorised share capital, pre-emption rights, and directors’ powers
• Company finance and investment
• Protecting minority shareholders’ rights, e.g. stipulating that company decisions require the unanimous agreement of all shareholders, not just a majority vote
• Changing the nature or structure of the business
• Dispute resolution guidance
• Guidelines for legal proceedings
• Information rights of shareholders

There are no rules dictating where this document must be kept. However, most firms retain copies of any shareholders’ agreement with other statutory records at their registered office or SAIL address.

Are shareholders’ agreements displayed on the public record?

Unlike the majority of company documents and records, a shareholders’ agreement is a private and confidential document. There is no need to file it at Companies House, disclose it on public record, or make it available to anyone who asks to inspect the company’s statutory registers.

Who can create a shareholders’ agreement?

The members (ideally with the help of a solicitor) can draw up a shareholders’ agreement before or after company registration. It can be altered at any time upon the agreement of all members (or as otherwise stipulated by the agreement).

If the company introduces changes that affect any provisions in the agreement, the members must update the document immediately. Similarly, amendments may be necessary upon changes to any laws or regulations affecting the company.

Who owns a limited company? 

Shareholders are the owners of a company limited by shares. Their level of ownership depends on their percentage of shareholdings and the rights attached to their shares. 

It’s slightly different in a company limited by guarantee. The guarantors do not actually own the company because there are no shares (portions of the company) to own. Rather, they control the company. 

Thanks for reading 

We hope you’ve found this post helpful. Please comment below if you have any questions, or get in touch with our London-based team if you need help registering a limited company.

You can also explore the Rapid Formations Blog or our Frequently Asked Questions support page for more limited company guidance and general business advice.