A limited company is defined as a business establishment where shareholders have certain rights in the company. In order to raise capital from investors, business owners usually create this form of organisation. If you are planning to set up a limited company, there are a few things you need to know about shares. Here’s a guide to limited company shares and what you should consider before investing.
Types of companies
There are six types of limited companies in the UK.
Public limited companies
These companies are limited by shares, and the general public is eligible to list its stock exchange publicly. Such companies require £50,000 as minimum share capital and must have a trading certificate.
Proprietary limited company
Proprietary Limited or Pty Ltd or private company limited by shares is also known as a private limited. These refer to companies registered as private but do not offer shares for sale to the public. They also have restricted rights to transfer shares and have at least one director.
Guarantee limited company
The class of private company limited by guarantee without share capital is known as Guarantee Companies. These do not have shareholders, and the owners are guarantors who pay a nominal amount as a guarantee without share capital in case of dissolving. This is common among non-profit organisations.
What are limited company shares?
When talking about private or public limited companies, one cannot forget about shares and stocks. These shares are a form of equity ownership of the company and have nominal and total values. When a company registers itself as limited, it should provide the statement of capital that lists:
- Total number of shares
- Shareholder names
- The nominal value of shares
The company can issue any number of shares while introducing equity. In the case of individual ownership, a share can be self-issued, but in this case, capital expansion is not generally planned. In case of bankruptcy or a company shut-down, a shareholder must pay the full nominal value of the purchased or owned shares.
Kinds of shares in a limited company
There are different types of shares that hold different rights and are defined within a company.
- Ordinary shares: These shares allow basic dividends and let every owner have equal voting rights.
- Non-voting: These shares are a subtype of common shares but do not present equality to vote. The owner of this share has no right to sit in the general meetings.
- Preference shares: These rank high in terms of dividends and capital but sometimes restrain voting rights.
- Deferred shares: In this, the shares do not hold any rights to dividends until a certain state of affairs has been completed.
- Redeemable shares: This kind of shareholding is exchangeable and is a tax-friendly way of share buyback.
- Management shares: These carry voting rights in order to maintain control over the company.
- Freezer and growth shares: These shares have distinct rights. In some conditions, these are only activated once the company faces a sale, share maturation or after a certain period of time.
Apart from these, a company can also issue a different class of shares. These are often categorised as alphabetical shares, which may or may not include classes like A (voting rights), B (dividend rights), C (capital rights), and so on. These influence shareholders’ entitlement to dividends, vote, and capital winding up or disposal.
One can increase the number of shares and sell smaller shares to numerous shareholders while keeping the majority of the shares for yourself. Presenting too many shares will enhance the shareholders’ limited liability in any event that the firm experiences financial difficulties or is wound up.
Summing up
A limited company is an incorporation organised through shares. These shares are the determiners of your position and rights within the company. No minimum or maximum limit is set to the number of shares a company can introduce. When a legal case is filed against a private limited, the company is sued directly instead of by the directors or shareholders.
We recommend you always seek legal advice when setting up shares, as the process can be tricky. For assistance in locating a qualified attorney for your case, you can always contact Mishoura.
Written By – Omar Shams
