A key part of the company formation process for a UK limited company is selecting shareholders – the people who own the company – and allocating shares to them. These shares and who hold them define the ownership structure of the company.
Understanding this is important as it comes with financial consequences – each shareholder is typically liable for the value of what that they hold.
What do shareholders have to pay?
A shareholder should pay the company for the total value of shares that they hold in the company.
If they hold 1 share with a nominal value of £1, they should pay £1. If they hold 10 shares with a nominal value of £1,000, they should £10,000. And so on.
How does a shareholder pay for shares?
They can be paid for via a cash payment into the company’s business bank account. Alternatively, they may be able to provide a service, equipment or perhaps shares in another company.
When should a shareholder pay?
This depends on what the articles of association say. Typically shareholders will need to pay at one of the below junctures:
- While the company is being formed
- At a date specified in the articles of association
- As soon as new shares are issued or existing shares are transferred
- If the company has a debt to pay (the director can issue a ‘call’)
- If the company is wound up
Are there instances when a shareholder doesn’t have to pay for shares?
Yes, payment is not normally required if they were given as a gift, inherited, or issued as part of an employee scheme.
But barring these instances, shareholders are normally required to pay for their shares. And because they are ultimately liable for this amount, we recommend issuing shares with a low nominal value when you are starting up.
We hope this post has been useful. Please leave a comment if you have any questions.