What is share capital in a limited company? A plain guide

What is share capital in a limited company?

Share capital is the total nominal value of the shares a limited company has issued. A company limited by shares is owned by its shareholders and must have at least one, who can also be a director. So 100 shares of £1 each give share capital of £100, whatever the business is worth.

Each share has a fixed nominal value, sometimes called par value, set when the share is created. One share of £1 gives share capital of £1. The shareholders and their holdings are recorded in the company's own register of members, one of the statutory registers a company still keeps.

Share capital is not the same as what the company is worth. A company with £100 of share capital can be worth far more, or far less. It is a fixed record of what the shares were issued at, not a valuation.

Source: Set up a limited company: shareholders

Nominal value versus the price paid

The nominal value is set when the shares are created. It does not change when the business grows. The price paid is what someone actually pays the company for a new share.

If someone pays more than the nominal value, the extra is called share premium. For example, if a new investor pays £10 for a £1 share, £1 is share capital and £9 is share premium. The two are kept separate in the accounts.

Under the model articles, a company cannot issue a share for less than its nominal value plus any premium agreed. The one exception is the shares taken by the founding subscribers when the company is formed.

Source: Model articles for private companies limited by shares

Why many companies start with 1 or 100 shares at £1

GOV.UK says the price of an individual share can be any value, and suggests choosing a low value such as £1.

A single £1 share is simple for a sole owner. Some owners choose 100 shares of £1 because percentages are then easy to read: 60 shares is 60%. It also leaves room to split ownership later without changing the nominal value.

A low nominal value matters because GOV.UK says shareholders will need to pay for their shares in full if the company has to shut down. A low value limits that liability to a reasonable amount. It is not a reason to leave shares unpaid, though. See the section on paid up shares below.

Source: Set up a limited company: shareholders

Ordinary shares and share classes

Most companies limited by shares start with one class of share, normally called 'ordinary'. Ordinary shareholders usually get one vote per share and are paid dividends.

A company can create other classes with different rights. For example, a class might have no votes but share in dividends, or be paid back first if the company is wound up. Under the model articles, new classes are created by ordinary resolution of the shareholders. Your own articles may say something different, so read them first.

Classes are a legal and tax decision, not just an admin one. Take advice before creating them. Renaming a class or changing its rights is reported on separate forms, such as SH08 or SH10.

Share ownership also decides who the company's people with significant control are. GOV.UK says a shareholder with over 25% of the shares or voting rights is a PSC, and PSC details are reported to Companies House.

Source: Set up a limited company: shareholders

The statement of capital

The statement of capital is the company's official summary of its shares. It is given when the company is formed and again whenever certain share changes are filed. It must show:

The total number of shares and their total nominal value. For each class, how many shares there are, what their nominal value adds up to and the prescribed particulars of the rights attached to them. And the total amount unpaid on the shares, whether on their nominal value or on any premium.

Getting this wrong is common. Mistakes include leaving out the rights for a class, adding up the nominal value incorrectly, or forgetting earlier changes. Keep a running record so each new statement starts from the last correct one.

Source: Life of a company part 2: event-driven filings

What 'paid up' means

A share is fully paid when the company has received the full nominal value and any premium. If not, it is partly paid or unpaid, and the shareholder owes the balance to the company.

Sometimes founders take subscriber shares on formation and never transfer the £1 or £100 to the company. Those shares are then unpaid, and the statement of capital and accounts should show the unpaid amount. The simplest fix is to pay it into the company bank account and keep a record.

Do not describe shares as fully paid just because the amount is small. The unpaid figure appears in the statement of capital on the public register.

Source: Life of a company part 2: event-driven filings

When Companies House must be told

New shares allotted: within one month of allotting new shares after incorporation, the company must send Companies House a return of allotment on form SH01, with an updated statement of capital. The company also updates its own register of members. Our guide on how to issue new shares walks through the directors' authority, pre-emption rights and the SH01 step by step.

Shares transferred: when an existing shareholder sells or gives shares to someone else, no new shares are created, so share capital does not change. The seller usually signs a stock transfer form, and Stamp Duty is payable to HMRC when the amount paid is over £1,000. Our guide to the stock transfer form (J30) and stamp duty covers both. The company records the transfer in its own register of members. Under the model articles, the seller stays the holder until the buyer's name is entered there. Companies House is not sent a separate form. Changes to shareholder information can be given in the additional information section of your next confirmation statement. If you need the paperwork prepared, we can help you transfer shares.

Other changes: splitting or combining shares, cancelling shares and changing class names or rights each have their own form in the SH series.

Source: Life of a company part 2: event-driven filings

Common share capital mistakes

Confusing share capital with the money in the bank or the value of the business.

Issuing new shares and forgetting the SH01, or filing it without a complete statement of capital.

Treating a share transfer as finished once the form is signed. The register of members must be updated, and Stamp Duty may be due.

Forgetting that a big change in shareholdings may also mean a PSC change, which is reported to Companies House separately.

Source: Forms to update shares

Get help with a share change

If your company has already allotted new shares, SimpleFilings can check the details with you, prepare the SH01 and statement of capital for your approval, and submit it. If shares are changing hands, we can prepare the transfer paperwork. The total price includes our £4.99 service fee and any applicable government filing fee. Stamp Duty is separate. We do not give legal or tax advice on how to structure your shares.