Shares indicate who owns a company, or who has the majority ownership. If an individual purchases shares in a company, they become an owner. The shareholders of a company will decide who runs the company in addition to being involved in making key decisions. Shares are usually given in exchange for a lump sum investment which may come from an individual including friends and family, or through a formal equity group. In return, shareholders are entitled to be paid dividends which are a share of the company profit.
When a company is formed with share capital, the level of share capital is decided and how it will be divided into fixed price shares. The information has to be submitted to Companies House using form IN01, detailing the amount of share capital and how it will be divided. The form has to be signed by all the founders of the company, who have to state the number of shares they want.
Rather than accept a business loan from friends or family, you could issue shares, removing obligation to make repayments. An arrangement like this should be formalised to avoid future dispute. Standard shares are called Ordinary shares that don’t have any restrictions or special rights. It is possible to get the highest return from Ordinary shares, but they also carry the highest risk. If a company is being wound up, Ordinary shareholders will be paid last of all. There are other types of shares, and professional advice is recommended.
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