A shareholder is someone who, quite literally, holds shares in a limited company. Shares are basically units of ownership, so if you hold all of the shares, it means that you own 100% of the company.

Shareholders don’t necessarily need to be involved in the daily management of a company, but they might influence it in other ways. Depending on the type of shares that they own, a shareholder may have voting rights allowing them to have a say on any major decisions about the company, such as:

• Changing the company structure or name
• Setting director’s salaries
• Authorising the creation or transfer of company shares

The extent of their decision-making abilities depends on how many shares they own. For example, if a company is owned by two shareholders, one of whom owns 75% of the shares, they have more voting power than the other shareholder.

Are shareholders different to directors?

In very basic terms, shareholders own the company and directors run it. They have different roles and responsibilities, but a shareholder and director can also be the same person! It’s particularly common in smaller businesses.
 

A shareholder can be an individual, or even another entity such as a limited company, partnership, or organisation. Companies House are planning to introduce a new system for verifying the identity of company shareholders and directors, although this is not yet in place so you don’t need to do anything differently for now.

It depends! You might be a shareholder because you incorporated your own limited company, but this isn’t the only way. For example, you might:

• Buy shares
• Provide funding, investment, or expertise and receive shares in exchange
• Have shares gifted to you
• Inherit them
• Acquire them through a workplace share scheme

Being a shareholder usually means you’re entitled to make decisions about the company, and to receive a share of the company’s profits known as a dividend payment. The dividend payment that you receive is worked out based on the volume and type of shares that you own.

Dividends are taxed at a lower rate than Income Tax and you won’t need to make National Insurance contributions on them, so they can be quite a tax-efficient way to receive income!

Dividends are a source of income, so shareholders will need to pay tax on any they receive if the total amount is more than the £500 Dividend Allowance during the 2024/25 tax year.

They’re not taxed at source like money from an employer usually is, so you’ll need to submit a Self Assessment tax return to report what you receive to HMRC, and pay any Dividend Tax that you owe.

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