Understanding Shareholders and Share Structure in a UK Limited Company
Shareholders and Share Structure in a UK Limited Company | FOUNDRS
Shares are the building blocks of ownership in a limited company. Understanding how they work, what a share is, how many you should issue, and what different share classes mean, is essential for any founder. Get it wrong at the start and it becomes significantly harder to fix later. This guide explains share structure in plain English, from the basics to the decisions that matter most
What is a share?
A share represents a unit of ownership in a limited company. If a company has issued 100 shares and you own 60 of them, you own 60% of the company. Shares carry rights, most importantly, the right to vote on company decisions and the right to receive dividends (distributions of profit).
When you register a limited company, one of the first decisions you make is how many shares to issue and who to issue them to. This forms your initial share structure, sometimes called your cap table (capitalisation table).
How many shares should you issue when registering?
There's no legally correct answer, but there are conventions. The most common starting point for a simple founder-owned company is 100 ordinary shares, issued at a nominal value of £0.01 (one pence) each. This makes percentages easy to calculate and leaves room to issue additional shares in round numbers later.
Some companies issue 1,000 or 10,000 shares at registration to give more flexibility, particularly if they anticipate bringing in co-founders or employees with fractional equity. The nominal value of shares doesn't reflect what the company is worth, it's simply the minimum amount a shareholder must pay to own a share.
Example: Solo founder company
Company registers with 100 ordinary shares at £0.01 nominal value. All 100 shares are issued to the founder. Total share capital: £1. The founder owns 100% of the company. Simple, clean, and easy to work with later.
Example: Two co-founders (60/40 split)
Company registers with 100 ordinary shares at £0.01 nominal value. 60 shares issued to Founder A, 40 shares issued to Founder B. Total share capital: £1. Founder A owns 60%, Founder B owns 40%.
Types of shares in a UK limited company
Ordinary shares
The most common share type. Ordinary shares carry full voting rights and full participation in dividends and capital distributions. Most founder-owned companies start with a single class of ordinary shares. This keeps things simple and is usually the right approach at the early stage.
Alphabet shares (A, B, C shares)
A common structure for companies with multiple shareholders, particularly family businesses or companies with employee shareholders. Different share classes (A, B, C, etc.) can have different dividend rights, allowing the company to pay different dividend amounts to different shareholders without altering voting rights. This is a tax planning tool used to direct income to lower-rate taxpayers. It requires careful setup and accountant/legal advice.
Preference shares
Carry preferential rights over ordinary shares, typically, a fixed dividend paid before ordinary shareholders receive anything, and/or preferential treatment in the event of winding up. Common in investment structures: investors often receive preference shares so they get their money back first if things go wrong. Not typically used at the founding stage of a simple small company.
Growth shares
Issued to employees or later shareholders at a low value that reflects the current state of the company. If the company grows, the growth shares participate in that future growth. A useful tool for giving employees meaningful equity without triggering large immediate tax charges. Requires specialist legal and tax advice to implement correctly.
What rights do shareholders have?
Right | Default position for ordinary shareholders |
Vote on key company decisions | One vote per share |
Receive dividends | Pro-rata to shareholding, when declared by directors |
Receive capital on winding up | Pro-rata to shareholding, after debts are settled |
Pre-emption rights | Right of first refusal on new share issuances (can be waived) |
Inspect company records | Yes, certain records |
Remove a director | Ordinary resolution (simple majority) |
Who needs to be on the share register?
Every limited company must maintain a register of shareholders (also called the register of members). This records who owns shares, how many they own, and when they acquired them. The share register is a private company document, unlike the information filed at Companies House, which is public.
Shareholders who own more than 25% of shares (or voting rights) must also be registered as Persons with Significant Control (PSCs) at Companies House. This is a public record.
Issuing new shares after incorporation
You can issue new shares to bring in co-founders, employees, or investors after incorporation. To issue new shares, you need:
Board authority to allot shares (check your Articles of Association)
Existing shareholders to waive their pre-emption rights (right of first refusal on new shares), or follow the pre-emption procedure
A resolution and updated register filed with Companies House via a Form SH01
Issuing shares at below their true market value to employees or directors can create income tax and NIC charges, seek advice before doing this
What is a cap table?
A capitalisation table (cap table) is a spreadsheet or document that shows the full ownership structure of a company, who owns shares, what type, how many, and what percentage of the company each holding represents. It also tracks options (rights to buy shares in future) and convertible instruments.
Keeping your cap table up to date is essential for investor conversations, due diligence, and understanding the implications of any future share issuances on existing shareholders' percentages (known as dilution).