Thinking about raising capital for your limited company? You might be considering how to issue shares in a limited company, but are unsure of where to start. This is something you need to get right, so this guide is designed to help explain the entire process.
Shares represent ownership. So, when you issue shares in a limited company, you’re essentially selling a portion of your business. This process, although common, needs careful consideration and this is where professional help really pays off.
Understanding share capital
Share capital is the total value of what shareholders have put in. It is like the sum on all the price tags when they were sold. It is the total amount of funds raised by a company through the sale of its shares, reflecting the investment made by its shareholders.
Think of it this way. A company issues 100 shares at £1 each, making the share capital £100.
Different classes of shares
Not all shares are created equal. Companies can issue different ‘classes’ of shares. These different types often come with different perks and levels of ownership.
Ordinary shares are the most common. They generally give shareholders one vote per share and a right to dividends.
Here’s a brief glimpse at some other share types, with more on these later:
- Alphabet shares – give a level of customisation in voting and payments.
- Preference shares that often have dividend priority.
- Management Shares often allow a group of people to maintain more control over voting.
The steps to issue shares in a limited company
When you’re ready to issue more shares, there’s a formal process to follow. You will want to follow all laws, but doing things correctly keeps things flowing more smoothly.
Director authority is very important
Before a company can get to selling more shares, they need authorisation. Most company setups, or ‘articles of association’, already give directors this power.
But, you might want to make sure. So check your company’s articles to see if there are any limits.
Shareholder resolutions
Sometimes, a shareholder vote is required. Especially if you need to give special rights with these newly made pieces, impacting how the business distributes its earnings.
A ‘special resolution’, needing 75% shareholder approval, is key for major changes. An example might be modifying the share structure. A share allotment may fall into this.
The board meeting
Once you know who is getting those pieces, and at what price, the board meeting is where to make that decision. The board of directors will formally review and approve the share applications.
This approval will happen through passing a board resolution. A documented resolution is key, especially for registering the details at Companies House.
Notifying companies house
After issuing new shares, you need to let Companies House know. This is done by submitting a Return of Allotment of Shares (Form SH01).
This has to be done within one month of the shares being issued. This form updates the company’s official record of share capital and ensures transparency.
Updating company records
It is not just about telling Companies House. Keeping your own internal company records current is needed also. This can impact many facets of the business from legal and taxation perspectives, to operational ones.
The register of members should reflect the new shareholders. A note of the share allotment should also get recorded in the allotment registry.
Issuing share certificates
After the board approves and paperwork gets handled, its time to share proof. Giving out share certificates proves the sale. A share certificate acts as formal evidence of ownership for the shareholder.
Each certificate should show: company details, shareholder name, number of shares, class of share and nominal value. They show directors’ signatures as well, solidifying it’s legitimacy.
Related guide: How many shareholders your company can have?
Reasons to issue more shares
So, why might a company want to increase and hand out more pieces to owners? This happens all the time.
It all has to do with ownership. The first group starts out with all the ownership.
Raising capital to grow the business
The main reason companies issue shares is to raise capital. Think of the newly handed out share certificates, as new funding to the business, since more people buy in.
By selling shares, a company can get the cash infusion they need without any interest to worry about paying. New funding might happen through selling portions of the limited company. Some shares might also come with a share premium, which increases the amount raised.
Bringing on new skills
Another advantage? Expanding more than money alone.
Issuing shares to new investors or partners can bring valuable skills. Experience can get a lot more solid with this approach. Sometimes a company secretary might be involved in advising on how this is completed, keeping everything compliant.
Dividing a company’s holdings into smaller pieces
Sometimes, selling smaller ownership stakes to investors works the best for businesses. More available shares means the original owners get the advantage of investment. At the same time they also keep much more of what they own.
If the current people keep a bigger amount, it allows for an owner vote outcome they probably favour. This might be the most helpful aspect for owners, allowing for control.
Share considerations
Dividing ownership might cause changes. A share issue is not always simple.
There’s the impact to know as well. Selling new shares to raise money has the benefit of getting funds for the business without interest. But doing so splits off a portion of potential profits, so professional help can determine if a share issue is best.
Control dilution
Selling stock impacts earnings. Knowing all details impacts the filing of the confirmation statement.
Existing owners may get a smaller payout since now other people can buy portions of the ownership. New partners now earn from those sales as well.
This is important. Consider a single shareholder who owns 100% of a company. If the company issues more shares, that original owner has less to themselves. Proper planning ensures fairness for the business and all owners, both existing and new.
Shareholder agreements
A Shareholder agreement offers a path to protecting existing investors. These legal documents protect current parties.
For example, ‘pre-emption rights’ may require offering new shares to existing shareholders first. It helps existing owners decide before new people invest.
Tax implications
When someone decides to sell their shares to get some earnings, this gets into taxes. Taxes on profits always apply, depending on many factors. Careful planning is essential here.
Selling shares, but later using them in business also opens more tax possibilities. A professional well-versed in these things pays off here.
Types of shares
Limited companies may find that dividing out different shares types has the best chance of suiting all owners. Shares can be grouped by levels.
Each type brings different levels. Voting might depend on share grouping. Payout levels also are determined by the grouping too. Allotting shares goes smoother with setting up classes first.
Here’s a comparison table:
Share Type | Voting Rights | Dividend Rights | Other Rights |
|---|---|---|---|
Ordinary | Usually 1 vote per share | Equal share of dividends | – |
Alphabet Shares | Can vary by class | Can vary by class | Allows different rights for different groups |
Preference Shares | Often no voting rights | Priority on payment of dividends | May have right of return |
Management Shares | Additional voting power | Equal, unless structured otherwise | Given to owners or core members of the team |
Non-Voting Shares | None | Usually an equal payout. | Often issued to family or core members |
Conclusion
Figuring out the best steps to take to issue shares in a limited company requires research and a deep consideration for business success. From getting approval by board to handling legal work and Company House details, taking the best path matters. All parties consider raising capital and weighing effects on the company and professional guidance smooths the process.
Share structures also affect tax levels, so that gets brought into consideration as well. Having things planned out properly is best.
Whether starting up a new business, planning to grow through bringing in others, deciding to issue shares in a limited company provides a lot to think through. Keeping the company’s registered office in the loop helps ensure all filings and regulations are complied with.
FAQs on how to issue shares in a limited company
How do I issue new shares in a UK limited company?
To issue new shares in a UK limited company, follow these steps:
- Check your company’s Articles of Association – Ensure there are no restrictions on issuing new shares.
- Get shareholder approval – If required, existing shareholders must agree to the new issue.
- Decide on the number and value of new shares – Define the share class and price per share.
- Update Companies House – File a SH01 form within one month of issuing new shares.
- Record the issue in your company’s statutory registers – Update the register of members and register of allotments.
Failing to follow these steps correctly could result in legal penalties and tax issues.
Do I need shareholder approval to issue new shares?
Yes, in most cases, shareholder approval is required. The rules depend on:
- Private limited companies (Ltd) – Directors can issue new shares if the company’s Articles of Association allow it, but in some cases, existing shareholders must approve.
- Pre-emption rights – If these apply, existing shareholders have the right to buy new shares before they are offered to others.
Always check your company’s shareholder agreements and Articles of Association before issuing new shares.
How do I notify Companies House when issuing new shares?
When issuing new shares, you must notify Companies House by filing Form SH01 (Return of Allotment of Shares) within one month. This form includes:
- The number and class of shares issued.
- The total nominal value of the shares.
- The names and details of shareholders receiving the shares.
You can submit the SH01 form online via Companies House WebFiling or by post.
What are the tax implications of issuing new shares?
Issuing new shares can have tax consequences, including:
- Stamp Duty – If shares are transferred rather than newly issued, Stamp Duty may apply.
- Capital Gains Tax (CGT) – Shareholders selling shares may be liable for CGT.
- Income Tax – If shares are given to employees below market value, it may be considered a taxable benefit.
Consult a tax professional to ensure compliance with HMRC regulations.
Can I issue shares to employees or investors?
Yes, you can issue shares to:
- Employees – Often through Enterprise Management Incentive (EMI) schemes or growth shares.
- Investors – To raise funds for business growth, often through angel investors or venture capital.
- Existing shareholders – Through rights issues or additional share purchases.
Ensure all share issues comply with company law and shareholder agreements.
