How many shares should I issue when forming a company?

When forming a company limited by shares, you must issue at least one share per initial shareholder. These shares determine how much of a company each shareholder owns and controls. But how do you decide how many shares to issue when forming a company? Is one share per person enough, or should you issue more? Let’s take a look.

Issue at least one share when forming a private limited company

Choosing how many shares to issue is one of the first decisions you must make when forming a company. In simple terms, the number of shares you issue when you set up a company primarily depends on how many initial shareholders the company will have at incorporation.

If you’re going to be the sole shareholder and company director, you only need to issue (allot) one share to yourself. If the company will have more than one shareholder, you need to issue at least one share to each shareholder.

• A guide to company shares
• Company shares for startups

You have the option to issue more than one share per shareholder. However, this is not required from a legal perspective, and it may make sense to keep your company’s initial share capital as simple as possible. You can always issue more shares following incorporation.

Should I issue more than one share when forming a company?

If you’re forming a company on your own, issuing only one share to yourself is perfectly acceptable. This is standard practice in many small companies. Issuing fewer shares keeps things simple, is easier to manage, and ensures your liability for company debts is kept to a minimum.

If you plan to take on investment, many investment schemes favoured by venture capital investors (e.g. SEIS and EIS) will generally require the company to issue new shares at the time of the investment, so you don’t need to create these shares at the incorporation stage (and it may create unnecessary legal work to tidy-up the company’s share capital if you do).

Your shares determine your percentage of ownership

The ownership of a company limited by shares is divided into shares. Each share represents a portion (i.e. a percentage) of the company. Therefore, when you own a share, you own a percentage of the company.

Example 1:

• You form a company with one shareholder (you) and issue only one share
• That one share represents the whole company
• You own 100% of the company

Example 2:

• You form a company with one other person and issue 10 shares of equal value
• Each share represents 10% of the company
• You each take 5 shares
• You each own 50% of the company

Example 3:

• You form a company with three other people and issue 100 shares of equal value
• Each share represents 1% of the company
• You each take 25 shares
• You each own 25% of the company

Every share you issue must be assigned a nominal value, usually £1. This is the sum that shareholders agree to pay for their shares at the time of their issue. The nominal value of your shares determines your ‘limited liability’. You must legally contribute this amount per share if the company becomes insolvent and can’t pay its debts (to the extent you have not already paid the company the amount prior to that event).

Bear this in mind when choosing how many shares to issue. For example, if you issued 10,000 shares with a nominal value of £1, the shareholders would be collectively liable for up to £10,000 if the company could not pay its creditors. For this reason, it’s generally best to avoid issuing more shares than you need. As noted above, 1 ordinary share is sufficient to form the company if there is only one shareholder.

Is there a maximum number of shares a company can issue? 

Generally, companies are free to issue as many shares of any value as they wish. However, this generally requires shareholder approval.

Can shares be held jointly?

With the exception of subscriber shares, two or more people can co-own the same share(s). Joint shareholders are becoming increasingly common, particularly in Right to Manage or flat management companies.

There is no statutory restriction on joint shareholders. However, some companies may prohibit them under their articles of association or a shareholders’ agreement, or at least restrict the maximum number of shareholders who may jointly own shares.  

Thanks for reading

Deciding how many shares to issue when forming a company (or at any time thereafter) can be tricky. We would generally recommend that companies keep their initial share capital simple at incorporation. However, it depends on your particular circumstances and the number of initial shareholders. If you’re unsure, we recommend seeking professional guidance from an accountant or legal advisor.

Please comment below if you have any questions about this post or need help forming a company. You can also explore the 1st Formations Blog for more advice, insights, and limited company guidance.