What is a Shareholder?
Please note that this article is intended for educational purposes only and should not be deemed to be or used as legal, employment, or health & safety advice. For guidance or advice specific to your business, consult with a qualified professional.
When you run a private limited company, you’ll have shareholders – a single one or hundreds, depending on whether you run a small business or a large public corporation.
The dictionary definition of a shareholder, also known as a stockholder, is a person who holds at least one share in a company. They’re not the same as a stakeholder though – this is someone who has an interest but doesn’t necessarily hold shares.
Being a shareholder confers certain rights and responsibilities such as voting rights and the right to receive dividends if the company makes a profit.
Shareholders are owners of the company, technically part-owners if there’s more than one, but they aren’t always involved in the day-to-day running of the business – that duty is left to the directors and company management. However, company directors can also be shareholders.
If a shareholder has more than 50% of stock, they’re a majority shareholder; if it’s less than that, they’re a minority shareholder.
How shares are issued
Shares are issued during company formation but issuing further shares is an effective way to raise finance, particularly for a fledgling business with no credit history which would struggle to get a bank loan.
If your company is limited i.e. limited by shares then legally it must have at least one shareholder. There is no upper limit on the number of stockholders you can have.
When you register your limited company with Companies House, you need to provide financial details about the shares and who owns them:
Share capital – This is the number of shares you issue – the total number and their total value. For example, if you have 100 company shares worth £1 each, your total share capital is £100. Public Limited Companies (PLC) have a minimum share capital of £50,000.
Shareholder information – You must supply their names and addresses.
Share information – You must tell Companies House the type of share allocated, and the rights conferred.
Shareholder rights and liabilities
Their rights are defined in the company’s articles of association and any shareholder agreements. A person’s rights will depend on the class of stock they own. These can include:
The right to receive dividends from company profits
The right to receive company reports (but not all financials), vote and attend general meetings
Whether their stock can be exchanged for money
Voting in exceptional circumstances
Although they’re the company owners in law, their main role is to provide consent to resolutions when required, and appoint or remove directors and ensure they don’t go beyond their powers.
There is no personal liability if a company faces insolvency – creditors will not be able to pursue them.
Different types of shares
Ordinary shares – Sometimes called common shares, they entitle the holder to a share of the company’s profits through dividends. Ordinary shareholders, or common shareholders, receive voting rights equal to one vote per share.
Non-voting shares – A holder has no right to vote but still receives dividend payments. Companies often use these shares to remunerate employees – it’s more tax efficient to give them dividend payments.
Preference shares – A holder of preferred stock receives a fixed dividend each year ahead of investors who own ordinary shares. The amount paid is usually a percentage of the nominal price of the share when it was first issued.
Frequently asked questions
How do shareholders make money?
They receive regular dividend payments – a share of the company profits. If they own shares in a PLC, they can sell their shares on a stock exchange for a profit.
Why are shareholders important?
They bring investment to a company, and they provide important checks and balances on the powers of the directors.
Where do you find a company’s shareholders?
UK businesses must file an annual confirmation statement with Companies House containing details of all shareholders, and this statement is publicly available.
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