When you set up a limited company in the UK, one of the first decisions you make is about shares and share capital. Every share represents a slice of ownership in your company. Understanding how shares work – from their nominal value to how they can be transferred, subdivided, or reduced – is essential for any company director or shareholder. This guide explains the key rules around shares and share capital under the Companies Act 2006.
Key Takeaways
- Every UK limited company share must have a fixed nominal value – this is set at incorporation and cannot change.
- No limit on shares you can issue – the authorised share capital requirement was abolished in October 2009.
- Different share classes carry different rights – ordinary, preference, redeemable, and growth shares all serve different purposes.
- Existing shareholders have pre-emption rights – they get first refusal on any new shares unless this right is formally disapplied.
- Companies can buy back their own shares – but only out of distributable profits and subject to strict Companies Act rules.
- Reducing share capital requires a solvency statement – private companies need director sign-off; public companies need court approval.
Share capital is the total value of shares that a company has issued to its shareholders. It represents the money (or money’s worth) that shareholders have invested in the company in exchange for their ownership stake. Every share in a UK limited company must have a fixed nominal value – for example, 1p, £1, or £100. This is set when the share is created and does not change, even if the actual market value of the company changes significantly.
Key terms to know:
- Nominal value (also called par value): The face value of a share as stated in the company’s statement of capital.
- Issued share capital: The shares that have actually been allotted and issued to shareholders.
- Called-up share capital: The portion of issued share capital that shareholders have been asked to pay.
- Paid-up share capital: The amount shareholders have actually paid.
Under the Act shares can be issued in any currency e.g. Euros or Dollars.
Before October 2009, companies had to declare an ‘authorised share capital’ – a ceiling on how many shares they could issue. The Companies Act 2006 abolished this requirement from 1 October 2009. Today, there is no statutory limit on the number of shares a UK company can issue, giving companies much more flexibility to raise investment or restructure ownership when needed.
Most small companies start with ordinary shares. But as a company grows, it may issue different classes of shares with different rights.
Common share classes include:
- Ordinary shares: The standard class. Holders get voting rights, dividends, and a share of assets on winding up.
- Preference shares: Holders receive a fixed dividend before ordinary shareholders. They may have limited or no voting rights.
- Redeemable shares: Shares that can be bought back by the company at a future date, on agreed terms.
- Growth shares: Used in employee share schemes to share future value without giving away existing equity. The rights attached to each class are set out in the company’s articles of association. Varying the rights of a share class typically requires a special resolution and the consent of shareholders in that class.
The Act permits giving financial assistance for the purchase of shares.
Shares are personal property (Scotland: moveable property) and may be transferred in accordance with the articles and relevant legal requirements.
The Act also contains provisions relating to:
- Allotment of shares: Directors need shareholder authority to allot new shares (unless the company only has one class of shares). Private companies can grant this authority in their articles.
- Pre-emption rights: Existing shareholders have the right of first refusal when new shares are issued, unless this right is disapplied by special resolution.
- Sub-division and consolidation: A company can split shares into smaller units or combine them into larger ones by passing an ordinary resolution.
- Redenomination: A company can convert share capital from one currency to another (e.g. pounds to euros) using the spot exchange rate at the time of the resolution.
- Variation of class rights: Changing the rights attached to a particular class of shares requires consent from holders of at least 75% of that class.
- Reduction of share capital: Private companies can reduce their share capital by special resolution supported by a solvency statement from directors. Public companies require court approval.
- Purchase of own shares (buyback): Companies can buy back their own shares out of distributable profits or the proceeds of a fresh share issue, subject to strict rules.
- Redeemable shares: Companies can issue shares designed to be bought back on agreed terms – useful for employee share schemes or exit planning.
FAQs
There is no minimum share capital for a private limited company in the UK. Most small companies start with just one or two shares at a nominal value of £1 each. Public limited companies (PLCs) must have a minimum allotted share capital of £50,000, of which at least 25% must be paid up.
Yes. Under the Companies Act 2006, shares can be denominated in any currency – euros, dollars, or any other. Different classes of shares can even be denominated in different currencies.
Nominal value (or par value) is the fixed face value of a share as stated in the company’s documents – for example, £1. Market value is what a buyer would actually pay for that share, which can be much higher in a successful company. Shares can be issued at a price above their nominal value – the difference is called the share premium.
Yes, subject to strict rules under the Companies Act 2006. A company can purchase its own shares out of distributable profits or the proceeds of a new share issue. The shares must be fully paid, and the buyback terms must be agreed in advance. The bought-back shares are usually cancelled.
Once all issued shares in a company (or within a class) are fully paid up and rank equally for all purposes, they no longer need to be individually numbered. This simplifies administration for companies with large numbers of identical shares.
Divyanshi is a subject matter expert in the UK accounting space, creating clear and easy-to-read content for accountants and businesses. She covers topics such as VAT returns, Self-assessment tax, bookkeeping, business planning and Year-end accounts. By understanding the common challenges faced by accountants and business owners, she focuses on writing content that answers real questions and simplifies complex topics. Her approach keeps information clear, relevant and useful for everyday business needs.
