Shareholders are the owners of a company. They invest capital into a business in return for shares in its profit. A shareholder can be an individual or a company, but doesn’t have to be a director or secretary of the company. A common misconception is that a shareholder has to be a director of a company, but shareholders do appoint directors to run the company on their behalf. Very often, a director will be a shareholder of a company, especially in a private limited company.

A shareholder doesn’t need to be involved in the daily management of a company and may just be an investor. The main benefit of being a shareholder is that you receive a dividend from the company profits. This often works out to be tax efficient as no National Insurance Contributions are deducted on payment of a dividend. As a tax credit is given, a lower rate of tax is also payable. However, the tax credit isn’t repayable and so isn’t advantageous for non taxpayers.

There are four classes of share, the most common being an ordinary share. These shares have no special rights or restrictions. Preference shares dictate that any annual dividends to be distributed will be paid to these shares before any other class of share. A cumulative preference share has a right that if the dividend can’t be paid in any one year, it will be carried forward to future years. Redeemable shares carry an agreement that the company will buy them back either on an agreed date or at the request of the shareholder after a specified period. The company cannot issue redeemable shares only. An ordinary share is the most common type of share, giving the shareholder one vote per share and an entitlement to a dividend if paid out by the company.

Issued share capital is the number of shares currently held by the shareholders of a company. Shareholders have to buy each share for a fixed amount per share. A smaller company would only issue a small number of shares to be able to determine the percentage of the company owned by each shareholder. The profits would be distributed accordingly. If you start a limited company and want to invest a lump sum, you don’t have to issue shares for the full amount. For instance, if you invest £10,000 you can issue yourself with a share of £1 and invest the rest into the business. If the business makes a profit, you can pay yourself the initial investment as a repaid loan from the business as this may be more tax efficient. Professional advice may be required before making a decision.

Share capital of a UK limited company should be established at the time of incorporation. The directors will decide the class of shares and the face value of each share. A new company will usually start with ordinary shares valued at £1 each. It is no longer a requirement to declare the total share capital required. All limited companies have to hold at least one share.
Although it is possible to set up a company without shareholders, it is extremely unusual. Shareholders are preferable to borrowing finance. If a company doesn’t make a profit, no dividends are paid to the shareholders, unlike a business loan which has to be paid back with interest regardless of whether a profit has been made. Shareholders buy shares in a company which they believe will make a profit. They will then be paid a dividend which is a share of the company profits, providing tax advantages for the shareholders.

The Accountancy Partnership

We are a national firm of accountants that specialise in small and medium sized businesses. We have been trading since 2006 and have more than 1,000 clients across many different industries and areas of the UK.

Our staff has a wealth of experience and qualifications from the major accountancy and tax associations such as ACCA, AAT, ICPA, IFA, and FTA.

Our clients receive many benefits including:

• Unlimited help and advice throughout the year — We offer our clients unlimited ongoing support for their business. We often find that new clients have lots of questions about running a business and about how the tax system works. We have heard every possible question many times before and therefore can offer new clients the very best advice.
• Free representation in the event of a HMRC investigation — If one of our clients is selected for a HMRC investigation then we will offer representation at no additional cost. We fight our client’s corner and ensure that our clients do not pay a penny more than necessary on the conclusion of the investigation.
• Dedicated Accountant — Our clients have their own dedicated accountant in which they can contact anytime. We feel this is important because it means our accountants can get to know their clients and build good relationships. All our accountants work from our main office and we never outsource work.
• Recommendations — With every piece of work we carry out for clients we look for recommendations that can be made. These recommendations can be anything from structuring the business in the most tax efficient way to recommending an insurance quote to reduce costs for clients.
• Free business guides — When a new client joins us we send them a free business guide. These guides outline in simple terms how the tax system works along with key dates and deadlines. Most clients find the guides to be extremely useful.
• Financial advice — We have a very reputable financial advisor who helps our clients to structure their finances in a way that best suits their needs. We always look out for circumstances where we think clients can benefit from financial advice and add it to their recommendations.

Please click here for a quotation for your business. Please also feel free to contact us if you have any questions or would like further information; 0800 0430 007, info@theaccountancy.co.uk.

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Disclaimer: The information contained in these articles is of a general nature and no assurance of accuracy can be given. It is not a substitute for specific professional advice in your own circumstances. No action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a consequence of the material can be accepted by the authors or the firm.