Put simply, a shareholder is someone who owns one or more shares in a company. A share essentially entitles you to a piece of the business. Usually, the bigger your shareholding, the larger proportion of the company’s profits you are entitled to, and the greater control you will have in the company.
Companies can have many shareholders, and each one is entitled to a slice of company profits that is proportionate to the value and number of their shares.
Typically, a shareholder will be referred to as a ‘member’ of a company, with the first members of a company (those who register the business) referred to as ‘subscribers’.
Who can be a shareholder?
In the UK, the law allows any person or corporate entity to become a shareholder in a company.
A shareholder can be of any age and can be based anywhere in the world; however, having a non UK resident shareholder may affect your ability to open a UK business bank account.
While most shareholders are people, it is common for shares to be issued to another company (a corporate shareholder), especially where there is a group of companies, with a parent company owning a subsidiary.
How many shareholders must a company register?
The minimum number of shareholders for a company is one. However, there is no statutory maximum.
Additional stipulations with regards shareholders, including minimum and maximum numbers, may be added to the company’s articles or shareholder agreement.
Are shareholders the same as directors?
Shareholders are not the same as directors. While a shareholder owns part of a company through acquiring or purchasing shares, a director is someone appointed by shareholders to oversee the operations associated with running a business.
Having said this, it is possible for a shareholder to also be a director. Indeed, within small companies, it is common practice for directors to be shareholders. Sometimes, a sole director will also assume the role of the sole shareholder.
What exactly do shareholders do?
Shareholders are not necessarily expected to do much on a day-to-day basis (unless, of course, they are also a director). While owning shares does not require much action, shareholders should be aware that the ‘nominal’ value of their shares represents the amount of money they are liable to contribute towards the debts of a company.
If the business profits, shareholders will receive their fair share according to the value and number of shares they own.
Does a shareholder have responsibilities?
Shareholders don’t have ‘responsibilities’ per se, except to pay the money they may owe the company, i.e. the unpaid value of their shares, and to vote on resolutions when they are proposed.
Shareholders also have rights to attend and vote at general meetings, and are entitled to dividend payments, as well distributions of the company’s assets, e.g. on windup.
Sometimes, these rights may be varied, perhaps as a result of additional share classes.
Is there a limit to how many shares a company can issue?
No. Most companies by default, require at least one share to be issued, with no maximum limit.
Older companies were restricted on the number of shares they could issue by an ‘authorised share capital’ which was a limit required to be placed in the company’s memorandum. This restriction can now be removed by adopting a new set of articles.
Similarly, new companies can optionally put in place such a restriction by amending their articles or adopting new ones.
Are there different types of shares?
The types of shares tend to vary between companies. Most companies issue so-called ‘ordinary shares’ that are of equal value and offer members equal rights to profits and voting.
Sometimes, however, companies can issue different ‘classes’ of share that offer members different dividend and voting rights – on the proviso the company’s articles provide for multiple classes of shares and the directors are authorised to issue them. If not, the company will need to adopt new articles of association that allow for the issue of multiple share classes.
Additional classes may also be used so that only some shareholders can vote or different rates of dividends can be paid.
How much are shares worth?
Each share has a ‘nominal’ value and a ‘market’ value. The nominal value, typically £1.00, is the amount assigned to the share when it is issued. The nominal value of a member’s shares is also the amount that the member must legally put towards company debts or issues surrounding insolvency.
The market value, on the other hand, is the amount the market is willing to pay for the share, i.e. its current worth. Sometimes referred to as the ‘real value’, this will fluctuate over time.
The difference between market value and nominal value is known as the share ‘premium’.