In short: Shares show who owns a limited company. Each share has a nominal value, and the shareholders' rights depend on the share class. New shares must be reported to Companies House, and share transfers on a stock transfer form may carry 0.5% stamp duty if the price is over £1,000.
Every company limited by shares is owned by its shareholders. Understanding how shares work helps you set up the company correctly, bring in partners or investors, and avoid problems later.
What is a share?
A share is a unit of ownership. If a company has 100 shares and you own 60, you own 60% of the company. Shares usually give three main rights:
- voting at shareholder meetings
- dividends – a share of profits when the directors declare them
- capital – a share of what is left if the company is wound up
Share capital and nominal value
When the company is formed, the founders agree how many shares to issue and their nominal (face) value – often £1 each. The total is the issued share capital.
Many small companies start with 1 or 100 shares of £1. The nominal value is not what the company is worth. It is simply the minimum amount each shareholder agrees to pay for each share.
Shares can be fully paid, partly paid or unpaid. If they are unpaid, the shareholder owes that amount to the company and could be asked to pay it.
A public limited company (PLC) is different. It needs at least £50,000 of allotted share capital, with at least a quarter paid up.
Share classes
A company can have different classes of shares with different rights. Common examples:
- Ordinary shares – full voting, dividend and capital rights. Most small companies only have these.
- Non-voting shares – dividends and capital rights, but no vote.
- Preference shares – a priority right to a fixed dividend or to capital.
- Alphabet shares (A, B, C shares) – separate classes so dividends can be paid at different rates.
Share rights are set out in the articles of association and in the statement of capital filed with Companies House. Using share classes for tax planning can be complex, so take advice from an accountant.
Issuing new shares
To bring in a new shareholder or raise money, the company can allot (issue) new shares. The usual steps:
- Check the articles and any shareholders' agreement for restrictions or pre-emption rights (existing shareholders' right to be offered new shares first).
- Pass the board and, if needed, shareholder resolutions.
- Allot the shares and receive payment.
- Update the register of members and issue share certificates.
- File a return of allotment (form SH01) with Companies House, with an updated statement of capital, within the legal time limit.
Transferring existing shares
When a shareholder sells or gives shares to someone else, no new shares are created. The usual steps:
- Check the articles for transfer restrictions.
- Complete a stock transfer form, signed by the seller.
- Pay any stamp duty due (see below).
- The directors approve the transfer and update the register of members.
- Issue a new share certificate.
- The change is shown on the company's next confirmation statement.
Stamp duty on share transfers
According to GOV.UK, a paper transfer on a stock transfer form is charged at 0.5% of the price, rounded up to the nearest £5, if the price is over £1,000. Transfers of £1,000 or less pay no stamp duty, and shares received for nothing are generally not taxed. You must send the form to HMRC's Stamp Office and pay within 30 days of the form being signed and dated, or you may face a penalty.
People with significant control
Anyone who holds more than 25% of the shares or voting rights is usually a person with significant control (PSC). PSCs must be recorded on the company's PSC register and with Companies House, and must verify their identity with Companies House.
Records to keep
- register of members (shareholders)
- copies of share certificates
- board and shareholder resolutions
- stock transfer forms
How Form My Company can help
We take the paperwork off your hands. Our Share Issue and Transfer service (£150) prepares the documents and files them with Companies House. We also produce Share Certificates for £80 and Resolutions and Minutes for £100. If a new shareholder becomes a PSC, we can verify their identity remotely as a Companies House ACSP. Need custom share classes? Contact us and we will explain the options.
Frequently asked questions
How many shares should a new company have?
There is no fixed rule. Many small companies start with 1 or 100 shares of £1 each. More shares make it easier to split ownership later.
Do I pay stamp duty when I transfer shares?
For paper transfers over £1,000, stamp duty is 0.5%, rounded up to the nearest £5. Transfers of £1,000 or less pay none.
Do I need to tell Companies House when shares are transferred?
Not straight away. The company updates its register of members, and the change is shown on the next confirmation statement.
What is a statement of capital?
It sets out the total number, value and classes of shares and the rights attached. It is filed at incorporation and when new shares are issued.