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Book of Share Certificates
Book of Share Certificates
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Issued Shares

 

Issued vs. Authorised Shares

This article now exits for historical purposes since the abolition of authorised share capital following the inception of the Companies Act 2006 which came in to effect on 1 October 2009. Many UK companies registered prior to that date may still have references and/or provisions to authorised share capital in their memorandum and articles of association or other corporate governance documents. This article may then serve to provide guidance on the relevance of these as they might affect the company’s present options.

Issued shares represent the amount of those authorised which a limited company has put in to circulation. The value of a company's issued share capital is determined by multiplying the number of units it has issued by their nominal value.

Issued shares were not the same as authorised shares. In the past, the authorised amount was the number of units the company could or was allowed to issue.

Issued Shares and Company Ownership

The percentage of issued shares held by a person determines the percentage of the company he or she controls. If for example the incorporated business has a total of 1,000 shares in circulation and an individual person has 150 of these. That person is then said to have 15% company ownership (150/1,000).

The number of authorised shares in the company might be 1,000 or even 100,000, but this is irrelevant when determining a person's percentage holding and ownership. Only issued shares are counted.

It is possible for a company to have more than one class of share. In this case, the issued share capital of each of the different classes would need to be considered.

Details of holders of issued shares are kept in the company's register of members.

Issuing the Full Authorised Share Capital on Incorporation

A common misconception is that when a UK limited company is set-up, it must allocate the entire amount of its authorised shares. If this is done, then the allotment of further shares requires an increase in the company's authorised share capital and may delay the distribution. This might be inconvenient if for example, several persons are wanting to become shareholders and their voting rights could be significant at a forthcoming company meeting.

For example, should four individuals register a company together and wish to have equal shares, allocating one share each to these four people is the same (in terms of the control of the company) as allocating 250 shares to each person. Provided that they are the only shareholders, in both cases they will each control 25% of the UK limited company.

Following on from the above example, assume that the number of authorised shares is 1,000, the significance is that they could have issued just four shares and still had (1,000 less 4) 996 units available to allocate to fifth who subsequently joins them. By having issued 250 shares to each individual, the full quota of the authorised units would have been distributed and none would remain and be available to the new person.

They could of course transfer 50 shares each to the individual. This however involves four transactions whereas the simple issuing of additional shares would only involve one process.

 
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