If you decide that you wish to set up your business as a limited company, you must first give serious consideration to a number of points. These include a name for your new company and the matter of share issue. It is imperative that you know all about how to issue shares correctly and legally.
The first steps in issuing shares
Share information must be input onto Form IN01. Companies House requires you to state the share capital of your limited company and how it will be split. Then you must declare the actual number of shares you wish to issue. This information must be forwarded to Companies House.
Which people can receive your shares and what are the terms and conditions?
Employees: Many businesses provide share ownership plans for their employees. This is a good idea as this provides employees with a tangible interest in the company where they work. This can provide greater incentives for staff to work hard, as their efforts directly affect the dividends they will receive.
Family/Friends: If your family and/or friends wish to invest in your company, they can also receive company shares. This investment does not qualify as a loan and, subsequently, does not need repaying. This avoids the hassle of repayment plans. When dealing with friends and relatives, it is important to make them aware of the total number of shares they receive and their monetary value.
Issued Capital: You must be aware that, before your public limited company begins to trade, a minimum of £50,000 in share capital must be issued. You will have to consider whether you wish to issue your company shares in Pounds Sterling or Euros. You can use either, but not both. Another stipulation is that the company must be capable of paying out 25% of its nominal value. For example, if £60,000 worth of shares have been issued, your limited company must have the wherewithal to pay its shareholders £15,000.
As part of the company formation procedure, the applicant must provide a Memorandum of Association and Articles of Association in addition to Form IN01. The Articles of Association will allow the company to issue more shares once trading has commenced. It must be noted, however, that the original shareholders must be in agreement before additional shares are distributed. Form SH01 is used to provide this information to Companies House.