How many shares to issue for a new ltd company?

[TheCarshaltonPatch]

Hi - first time user of this forum so apologies if this is covered elsewhere!

Myself and a colleague are setting up a limited company, and we're wondering how many shares we should issue ourselves?

I understand that any shares we issue we need to physically pay for into our bank account, and these represent a liability should the business fail, so from this point of view it makes sense to issue a small number of shares at a relatively low value (say 1 each at £1 each)?

Is there any disadvantage of doing this? What if wanted to sell part of the company at a later date - would we be better off having a larger number of shares each to enable this? We could for instance issue 1,000 shares at 1p each and take 500 each.

Any advice on this would be appreciated.

 

[CKG]

1 share each could be a problem as a if either of you disagreed on a resolution that was to be passed it would either have 100% of the vote or be split without a majority and couldn't pass and the status quo would have to remain.


You need to figure out how to deal with that issue as it could make it impossible to administer the company if you ever fell out with you fellow 50/50 holder.

As for selling part of the company later on - you can issue new shares and restructure the capital any time you like.

 

[E-Accountant]

Hi.

First of all, the shares need not necessarily be paid at the time of subcribing. You can withheld the payment unless the company requires you to do so.

Secondly, the share capital basically represents the amount of capital invested by the sponsors of the company. It depends as to how much capital your business needs to initiate its operations. Once you estimate that figure, you may decide about the number of shares as well as the nominal value of per share.

It doesn't make any difference if you issue a large number of shares for the sake of selling them at a later date. The new buyer will estimate the fair value of your business assets and shall make an offer accordingly for the portion of ownership acquired.

 

[TheCarshaltonPatch]

Thanks for your advice. Another question I have regards Articles of Association - on the gov.uk website it says that:

"Most companies use standard (‘model’) articles - but you can change these or write your own as long as the company doesn’t break the law."

Looking at the standard template they provide, it's fairly long-winded to the non-legal eye. Would you be happy in most instances going with standard articles? It would make it easier for us to set up online.

 

[Scalloway]

You are better off having a low issued capital and putting in the rest of the money you need as a directors' loan. A directors's loan can be withdrawn at any time when funds permit, whereas taking out money that paid for shares is a complicated process, and may indeed not be possible.

 

[E-Accountant]

most of the small companies go with standard articles.

You can customize if you wish to do so.

 

[Scalloway]

If you are 50:50 partners I would recommend getting a shareholders agreement which will cover situations not in the articles.

 

[TODonnell]

Most formations would be for 100 shares @ £1 each; 4 directors get 25 each.
If there are 3 of you, then 99 shares, 33 shares each. Limited companies tend not to trade in shares too much; I understand they are not allowed to be sold publicly and diluting shareholdings can cause big problems.

As Scalloway says, you need to define liabilitles and responsibilites very clearly if there is more than 1 director/shareholder.

A typical situation on these forums is: "Another director has 50% of the business but I'm doing all the work, what do I do?"

We offer registered offices for company formations. See below ...

 

[Moneyman]

Make the shares fully paid. i have come across credit systems where this is a factor. the amount is unimportant.
So £100 fully paid shares. normally works best.

 

[templateagreements]

Standard Articles should be fine and can be changed later relatively easily. If you get the company from an off-the-shelf provider, they will provide the Mem and Arts.

 

[JamesCartwright]

Hi - first time user of this forum so apologies if this is covered elsewhere!

Myself and a colleague are setting up a limited company, and we're wondering how many shares we should issue ourselves?

I understand that any shares we issue we need to physically pay for into our bank account, and these represent a liability should the business fail, so from this point of view it makes sense to issue a small number of shares at a relatively low value (say 1 each at £1 each)?

Is there any disadvantage of doing this? What if wanted to sell part of the company at a later date - would we be better off having a larger number of shares each to enable this? We could for instance issue 1,000 shares at 1p each and take 500 each.

Any advice on this would be appreciated.

Yes, at some point you will have to pay this amount to the company.
We usually recommend issuing a 100 shares at £1. This makes it easier to distribute shares in the future if you wish to do so.

 

[husyat]

Hi,
At the time of registration we issued shares for 10000 pounds instead of 1000, is it possible to change that somehow?

 

[Scalloway]

Section 11 on this page may help

http://www.companieshouse.gov.uk/about/gbhtml/gp3.shtml#ch7

 

[husyat]

Thanks for your reply.

it says there:
"In the above cases, the total share capital remains unaltered. "

That means, we can't alter the share capital from 10,000 pounds to 1,000. Am I right?

 

[Scalloway]

Section 14 on that same pages explains how you can reduce share capital.