Shares, shareholders & company structures explained

Starting and growing your own business is exciting. You’ve taken a leap of faith and are building your future! But then words like shares, shareholders, and company structures appear, and suddenly running your limited company feels complicated.  

We’re here to reassure you that these words aren’t designed to trip you up, and you don’t have to be a corporate lawyer to grow a successful business. Just becoming familiar with these terms and what they mean for your business is all you need to get started. 

In this article, we’ll break down what shares, shareholders and company structures mean, why they matter and what your responsibilities are as a founder, so you can get back to what you love.

Key takeaways:

• Shares represent ownership in a company, while shareholders are the people or entities who own those shares
• Shareholders’ capital is the initial money invested by company owners
• You need at least one company shareholder to incorporate a company
• A shareholder agreement outlines the rights and responsibilities of shareholders, helping to avoid future squabbles
• Your shares have two values: a legal number (nominal value) and a real-world price (market value)

In simple terms, a share is a single, official unit of ownership in a company. Let’s imagine that your company is a delicious pizza and the shares are the slices. 

If you own all the pizza slices, you own 100% of the company – this makes you the only shareholder.

Shares are issued when a company is first set up and more can be issued later when the company needs more money or new partners (more on that later).

Shares allow companies to raise capital (money) to fund their business activities and growth. In return for their investment, shareholders get shareholder rights. These rights often include:

• A say in how the company is run: You get votes on major decisions (like bringing in new directors)
• A slice of the profits: You receive dividends when the company pays them out

We’re sorry if all you can think about now is pizza. 

Share capital is the total value of all the shares a company has issued.  It’s the foundational money invested by a company’s owner/s to get the company started. The company doesn’t ever have to pay this money back (unlike a business loan). This makes it a permanent, stable part of your company’s financial structure.

Let’s look at an example: Imagine that you’ve set up a limited company and have decided to issue 100 shares to yourself as the founder. Each share is £1 each (we’ll come onto why they are £1 in a bit). So, you pay £100 into the business to buy them. 

That £100 is the share capital received by the company. It’s the real money that funds your initial business activities, like marketing or purchasing new equipment. 

The good news is that the rules here are really flexible, with just one non-negotiable to keep in mind: 

• When you first set up the company, you must issue at least one share to your first shareholder (which is very likely to be you!) — this is a legal requirement of incorporation. 

Beyond that single share, there is no maximum limit to the number of shares a company can have — you can issue as many or as few as you like.

For a founder who is the sole company owner, issuing 100 shares is common because it keeps ownership simple (you own 100% of the company).  However, you might want to issue more than one share if you have co-founders or if you plan to introduce shareholder options for key employees in the future. Splitting the ownership into a high number of shares can give you more flexibility for future investments.

OK, here’s where things get a little more complicated — but don’t worry, you’ve got this! 

When we talk about how much shares are worth, there are two different values: 

1. A nominal value (also known as ‘par value’) 
2. A market value

These two values are hardly ever the same, and here are the key differences:

If your business is doing really well and making lots of profit, your shares are worth more at market value. 

For example, a share might have a nominal value of £1 (which is a common initial price when starting a limited company), but its market value could be £100 or more if you decided to sell it to an investor.

“What is a shareholder?” is one of the most common questions for first-time founders. Shareholders are the people or entities (i.e. other companies) that own shares in a limited company. They are the company’s owners. 

Because shareholders own a piece of the business, they typically have certain shareholder rights such as the right to vote on major company decisions, like appointing or removing directors, and receiving dividends.

It’s worth noting that if a shareholder owns over 25% of shares, this can make them a person with significant control over the company, giving them substantial influence on key decisions. Also, if a shareholder owns over 75% of the shares, this generally grants them outright control, allowing them to make major decisions and potentially own the company entirely.

In many small businesses, it’s common for the founder (or founders) to be the only initial company shareholders. 

As we mentioned a little earlier, even if you’re operating solo, you still need to issue shares to complete the legal company registration process. Without shareholders, a limited company simply can’t exist!

Shareholders capital is another way of talking about the money that shareholders have put into the company in exchange for shares.

It’s the foundational bucket of money that gets the company up and running — and it can also be referred to as ‘equity capital’, as it represents the owner or owners’ financial stake in the business.

For example: If three co-founders start a business and each founder buys 100 shares for £100, the company receives a total of £300 cash from its owners. This £300 is the company’s shareholder capital and it’s recorded on the company’s balance sheet.

Most small businesses in the UK start with just one or two shareholders.

The fact that you only need one shareholder to form a limited company in the UK makes the process of setting up a business really flexible for solo founders. After that, there is no maximum limit on the number of shareholders a company can have. You could have thousands of shareholders if you wanted.

As your business grows, you might welcome new shareholders if you secure investment from external parties (like venture capitalists or angel investors) or if you choose to bring on co-founders. 

Tip: If you do choose to bring on new shareholders, you must manage and document these changes correctly through the Companies House filing system so everyone knows exactly what they own and nothing gets lost in translation.

A shareholder agreement is a contract between the company shareholders themselves and sometimes the company itself.  Shareholder agreements are a bit like a prenup but for your business partners. 

You might have the best relationship in the world now, but if disagreements arise or a shareholder wants to leave the company, this document steps in. While shareholder agreements are not legally required, they’re generally recommended as they set out everyone’s rights and responsibilities.

What’s usually covered in a shareholder agreement?

• Voting rights: Who gets to vote on what, and how many votes they have
• Share transfers: Rules about selling or transferring shares
• Dividend policies: How profits will be distributed
• Dispute resolution: What happens if shareholders disagree
• Exit strategies: What happens if a company shareholder wants to leave or if the company is sold

Having a clear shareholder agreement in place gives everyone peace of mind.

An ordinary shareholder is the default, most common type of owner in a limited company. They are also referred to as “common” shareholders. 

Ordinary shareholders have a claim on the company’s profits through dividends. But here’s the catch: these are usually paid after any preference shareholders or creditors have been paid. 

In fact, if a company is closing down, ordinary shareholders are the last in line to receive any money after any preference shareholders and creditors. 

But, in exchange for being the last to receive payment, ordinary shareholders always hold full company voting rights.  This means they get a say in how the company is run. And while ordinary shareholders shoulder the most risk, they do gain the most reward if the business succeeds.

A preference shareholder holds ‘preference’ shares, which come with different rights to ordinary shares. 

The main perk of being a preference shareholder is that these individuals typically receive fixed dividend payouts (which are received before any money is given to the ordinary shareholders). This means a preference shareholder gets a more stable and predictable return on their investment.

Plus, as mentioned above, if the company goes bust, preference shareholders get their investment back before ordinary shareholders.

But, there’s a catch! In return for this financial safety, preference shareholders don’t get company voting rights. This means they have less say in how the company is run, so it’s a trade-off between security and control. 

Preference shareholders are usually investors who want a steady return on their investment without the fuss of getting involved in a company’s management. You’ll often see these types of shares issued during later investment rounds, when a company wants to secure specific types of funding. 

Shareholders equity (also known as ‘owners’ equity’) is the value of the company that belongs to the shareholders.

It’s calculated by taking the company’s total assets (what it owns) and subtracting its total liabilities (what it owes). 

It represents the money (the shareholders capital) put in by the founders, plus any profits the company has kept and reinvested over time. It’s a really important number for investors as it shows the true net worth of their stake in the business.

It’s very easy to get shareholder vs stakeholder confused — especially since every shareholder is a stakeholder but a stakeholder isn’t always a shareholder.

Here’s the difference:

• A shareholder owns a piece of the company (via shares), and their primary interest is the company’s financial returns and profits
• A stakeholder is anyone who has an interest in the company’s success and how it operates — even if they don’t own a single share

The stakeholder group is much wider and it might include your employees (who rely on the business for their livelihood), customers (who rely on your products), suppliers, the local community and even the government. 

Yes, a director is different from a company shareholder, although in most small limited companies, one person holds both titles.

As a founder, you’re effectively wearing two (or more) different hats, because the roles are different:

• Shareholder: Owns a part of the company. Can vote on major decisions like appointing new directors and investments. They’re not necessarily involved in daily business management
• Director: Manages the day-to-day business. Steers the ship and has a legal duty to act in the best interests of the company

If you’ve set up a limited company by yourself, you are both the shareholder and the director, giving you total control. However, as your company grows, you may choose to hire directors who aren’t owners, or you might choose to keep your ownership stake while stepping back from the director role.

Phew! You’ve successfully navigated the differences between shares, shareholders, and company structures. We hope you feel more confident and ready to make decisions about your company structure. 

If you’re still in the early stages of setting up your limited company, Countingup can help you form a company quickly and securely. 

Start by using our free company name availability checker to help find your perfect name. Then, when you’re ready to incorporate, our simple company registration service will get you up and running as soon as possible. Once you’re official, you’ll need to separate your finances. Our business current account can help you manage your money, accounting and tax in one smart app.

In the meantime, good luck with your new venture — you’ve absolutely got this! 

A shareholder resolution is a formal decision made by the shareholders of a company. These decisions are usually about important matters that affect the company but aren’t part of the day-to-day operations, like changing the company’s articles of association or approving a major sale.

Class A and Class B shareholders refer to different types of shares a company might issue, each with different rights. For example: Class A shares might come with more voting power, while Class B shares might have fewer voting rights but perhaps a higher dividend payout. It all depends on how the company’s articles of association are set up.

The nominal value of shares, also known as par value, is the minimum legal price assigned to a share when it’s issued. It’s often a very small amount, like £1 or £0.01, and is primarily used for accounting purposes rather than reflecting the actual market worth of the share.