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13 December 2018 You are not logged in. Login now.

What shares should a company issue?

issue new share certificateMany business owners put little consideration into the type of shares they issue at the time of incorporation. However, you may want to consider issuing different types of shares to create flexibility.

When forming a new company you will have to issue at least one share to one shareholder. If the company is owned by one person then issuing a singe £1 share to the sole shareholder is a common practice. For companies with more than one shareholder you may want to consider issuing different types of shares.

The most common type of share issued is an ‘ordinary’ share. They normally have equal rights to voting, dividend payments and distribution of profit on closure. You can give the share any value but it is typically £1 per share. Whilst many business have several shareholders all owning the same type of share you may want to consider issuing several types of shares with different names.

Issuing Alphabet Shares

If the company has more than one owner you may want to consider issuing alphabet shares. This simply mean naming a share with a letter to differentiate it from the other shares. For example you may issues Ordinary Class A shares, Ordinary Class B shares, Preference B shares or Dividend Class C shares. There is no legal name that must be issued to shares and these are just examples.

Each share can be given its own rights or powers. You may create shares that are voting only to allow shareholders to attend and vote at meetings. Other shares may be dividend only allowing the company directors to distribute annual profits by dividend to specific shareholders. When one shareholder has invested greater time or money into the business a class of shares may have rights regarding the distribution of funds in the event the company is ‘wound up’ or closed.

You can create shares with any rights you wish. Whilst we are not suggesting you create many share classes with rights covering a wide range of issues, creating two or three share classes can be useful. This is particularly important if you want to distribute different dividends.

Changing shares in an existing company

If your company is already formed with just ordinary shares you can easily forming a new company post formation. Some commentators will tell you this is complicated, but in reality it can be as simple as completing 1 or 2 forms and recording the actions of the directors and shareholders.

If you need assistance increasing your company share capital or issuing shares with different rights do not hesitate to contact us.

About the Author Mike Harris:
I have been providing advice and support to companies for over 15 years through my company Small Firms Services Ltd. You can follow me on Google+ and also twitter