What is share capital?
3-minute read
Limited companies are usually ‘limited by shares’, which means that shareholders in the company are only personally liable for what they put into the business.
Share capital, then, is the total money put into the business – the nominal value of the shares you’ve issued.
When starting up, many limited companies choose to issue 100 shares at £1 each because then it’s easy to work out who owns what (each share is one per cent of the business).
There are also different types of shares, including ordinary shares, preference shares, and redeemable shares.
Read all about limited company shares and share capital in our guide.
What are shareholders?
Shareholders are people who own shares in a limited company – and shares indicate how ownership of the company is divided. Therefore, shareholders collectively own the business.
Anyone, including both individuals and organisations, can be shareholders in a limited company. Shareholders have a say in some company decisions (‘voting rights’) , like changing the company name and appointing or removing directors. But shareholders don’t run the company, unless they’re also directors.
Small ‘one-man bands’ and startups might only have one person in the business, who’s the sole director and sole shareholder. In this situation the limited company might only issue one share, representing 100 per cent of the business.
When you register your limited company, you need to give information about the shares and how they’ve been issued. This includes:
- the number of shares and their total value (your company’s ‘share capital’)
- the names and addresses of your shareholders
What is share capital?
For a share capital definition, if shares represent ownership of the company, then share capital is the total value of the shares issued by a limited company.
If you’ve issued 100 shares at a nominal value of £1 each, then the share capital is £100.
Share capital is different to the market value of the shares. Share capital represents how much money was actually used to buy shares, but the market value of the shares might mean that those shares would be worth much more if sold.
As a limited company is a separate legal entity from its owners and directors, the value of someone’s shares is their total financial liability.
This means that if the company gets into debt and becomes insolvent, then shareholders have to pay in the nominal value of the shares they hold – but that’s the extent of their liability.
Limited companies can issue more shares after starting up, often if they want to expand or start working on new projects.
What is called up share capital?
Sometimes when you issue shares to investors, you can make an agreement for them to be paid in instalments or at a later date. This kind of agreement is known as called up share capital.
The reason it’s “called up” is because once you request the unpaid balance to be paid, it’s being “called up”.
When the shares have been paid in full, they’ll usually be viewed as part of the whole number of shares.
What happens when called up share capital is not paid?
Shareholders who’ve been issued their shares but fail to pay for them by the agreed date are responsible and liable to the company for the debt.
They have a legal responsibility to follow your business's decision on the payment of the shares.
What are the different types of company shares?
Businesses can issue different types of shares, which give shareholders different rights to dividends, profit sharing and voting. Most businesses issue ordinary shares.
Ordinary shares
These shares are the most common. They don’t have any special rights or restrictions. Ordinary shareholders have voting rights, but they’re the last to be paid if the company is wound up.
Non-voting ordinary shares
As the name suggests, these are ordinary shares but with restrictions around voting. These shareholders might only be able to vote in certain scenarios, or they might not be able to vote at all.
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Preference shares
These shareholders don’t have voting rights but they do get dividends ahead of ordinary shareholders. The dividend is fixed and annual, which means that it doesn’t change with the business’s profits.
Cumulative preference shares
These are the same as preference shares, but if a dividend can’t be paid one year, it carries forward to successive years. The dividend must be paid regardless of a company’s earnings, as long as it has profits to distribute.
Redeemable shares
These give the company the right to buy back shares in the future. The date can be fixed or the business can just choose when to buy them back. A company can’t only issue redeemable shares, so they need to issue non-redeemable shares too.
Is there anything else you’d like to know about limited company shares? Let us know in the comments below.
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Written by
Sam Bromley
Sam has more than 10 years of experience in writing for financial services. He specialises in illuminating complicated topics, from IR35 to ISAs, and identifying emerging trends that audiences want to know about. Sam spent five years at Simply Business, where he was Senior Copywriter.
We create this content for general information purposes and it should not be taken as advice. Always take professional advice. Read our full disclaimer
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