There are two broad circumstances where a company might issue shares. The first of these would be on busines incorporation and the second would be following its registration and birth as a limited company.
Minimum Number of Shares on Incorporation
When a company is submitted to Companies House for registration, it is mandatory for it to issue at least one share to a person or other incorporated body.
Whilst a single share must be allocated as a minimum, the maximum number which can be allotted would depend on the amount of authorised shares which the company chooses to have.
How Many Shares to Issue on Company Incorporation
The question of how many shares should be issued on incorporation does not have a clear cut answer.
As a general rule, it is better not to issue all of the authorised shares if it is likely or possible that the owner will want to allocate additional shares to a third party at a later date.
Company and Share Ownership
A person owning shares in a company effectively owns some or all of that business.
The percentage ownership which an individual is deemed to have is determined by looking at the proportion of the issued shares which that person has in their possession.
Quite simply, if a company has one issued share, the person who owns it has 100% ownership (100% of one is one).
If there are five shares in issue and a person possesses two of these, then they have a 40% stake in that company (two divided by five).
Either of the above examples would hold true irrespective of how many authorised shares the company had. These are not relevant in determining ownership.
Authorised Shares
| Following the Companies 2006 Changes introduced on 1 October 2009, company is no longer required to state an amount of authorised share capital but merely issue a statement of capital detailing the number of shares in each class which have been issued. The remain text of this articles should therefore be used as reference material and not an indication of the regulated in currently in force |
Authorised shares are the total number which can be issued.
There is often confusion surrounding the meanings of authorised and issued shares and what, if anything happens to the difference between the two amounts.
The following analogy might explain this.
Consider a bank account with an overdraft facility of £1,000 where interest is charged on the amount of the £1,000 which is actually used.
The £1,000 overdraft facility is similar to having 1,000 authorised shares. It is the amount which could be used or spent.
The significant factor in terms of how much interest will actually be paid is how much of the £1,000 is actually used or how many of those 1,000 shares are actually issued.
The unused portion of the overdraft remains with the bank as does the un-issued shares remain with the company.
