Limited companies are separate legal entities from their owners, but they still need an owner. These owners are called shareholders because they have a "share" in the business. Most small businesses start with one or two shareholders, who are usually also the directors of the business. The directors have a different role from that of the shareholders, but it is possible to be both at the same time, but why would one want to be a shareholder? In this article, we look at what shares and shareholders are, who can own them, and what that means for tax purposes.
What is a Shareholder?
This is the term for anyone who owns "shares" in a Limited company. As a shareholder, you own part of a company in relation to the proportion of shares you hold. A company can have a single shareholder or several shareholders. Every person has the right to receive a share of the profit proportional to the number and value of his shares. Shareholders are commonly referred to as "Members". The initial shareholders of a company, the people who register the company and agree to become shareholders, are also called "subscribers".
Can anyone Become a Shareholder?
Yes, any natural or legal person (company, business, organization, etc.) can be a shareholder of a Limited company.
What is the Minimum Number of Shareholders Required to Register a Limited Company?
Companies House requires at least one shareholder to form a Limited company.. There is no maximum number of shareholders a corporation can have.
Is a Shareholder the Same as a Director?
no A shareholder owns a business by buying or acquiring shares. A director is appointed by these shareholders to direct the operational activities of a company. However, a shareholder can also be a director. This is very common in small businesses and startups. In many cases, a single person assumes the role of sole shareholder and sole director.
What does a Shareholder Do?
Shareholders hold shares in a company. The "face value" of their shares is the amount they have to pay for trade debts. Shareholders receive a share of the company's profits proportional to the number and value of their shares. They are not responsible for the day-to-day operations of the business unless they are also directors. Shareholders decide only important matters, such as changing the corporate name, appointing or dismissing directors, modifying the powers of directors, and amending the articles of association.
What are Shares?
A share is a part of a company limited. Each share represents a certain percentage of the business. Anyone who owns shares in a limited company is called a "shareholder" or "member".
The number of shares held by each member determines the share of the company that he owns and controls. They usually receive a percentage of the company's profits that corresponds to their stake.
Here are some simple examples of popular sharing structures:
● One issued share = 100% ownership of the company.
● Two equal shares = 50% ownership per share.
● 10 of equals = 10% ownership per share.
● 100 of equal value = 1% ownership per share.
Who can have shares?
Shareholders can have shares, but in the UK a limited company can only hold shares in the company.
Why Might a Business Want to Own Shares?
This isn’t that unusual, and owners of multiple companies sometimes form a limited company to own the shares of all of their various companies, and then own the principal parent company. Other reasons can be:
● Cash-rich companies may choose to invest some of that cash by buying shares in other companies just to get the revenue and capital growth they would see. If you have a profitable and growing business, you can sell shares to raise capital.
● A company may wish to own a business that manufactures complementary products so that they can be used in a combined marketing strategy.
● The company may want to buy a supplier to lower the cost of the materials it needs or to control who else has access to it (which could make life very difficult for its competitors).
Note: Companies that have interests in other companies can get very complicated, especially when it comes to accounting and taxes. Always get advice!
What are Shares for Tax Purposes?
If you own shares, you could receive dividends from the company or sell the share and get paid that way. Unfortunately, it's rarely possible to evade taxes and the income you could make from it is no different!
Shares and the Taxes on Dividends
Individuals who receive dividends usually have to pay tax on the dividends. This is a different rate from income tax and the rate you pay depends on what tax bracket your income is in. There's no limit to how often a company can pay out dividends, or how much, as long as there's enough left over for the business to function normally.
Since dividends are a portion of earnings, the total amount is divided by the number of shares held and then multiplied by the number of shares the shareholder owns. Here, too, pay attention to the shareholders' agreement or the company's articles of incorporation. If the company launches different share classes, it may pay dividends at different rates depending on what type you own, so your earnings cut may be different than someone else's.
Why Choose "Pro Tax Accountant" for your Limited Company?
"PTA" is a tax specialist. We specialize in accounting for limited companies and offer a variety of services. We can help you start a brand new business or assist you with opportunities to increase cash flow and profits with an existing business. We can also advise you and provide you with all the tools, support, and information necessary for you and your limited company to grow. After all, there are no limits to your business opportunities if you choose "PTA". Contact us today.