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Shares

Applicable to companies limited by shares only

Share Capital
Each company will set an ‘authorised share capital’ when incorporating, this is the total amount of shares that a company could possibly issue and commonly amongst new small businesses, it is 1000 x £1 shares. The agreed share capital will be detailed in the memorandum & articles of association and can only be increased through a special resolution of the company. It is important to note that not all shares have to be issued, they can be retained within the company for future use, and possibly when the company grows or seeks investment.

Subscribers
At the time of incorporation, there must be at least one share in issue – the holders of shares at the time of incorporation are known as the subscribers.

Types of Shares
• Ordinary – This is the most common type of share, it is the basic type that has no special rights or restrictions and can be divided into classes of different value.
• Preference - These shares normally carry a right that any annual dividends available for distribution will be paid preferentially on these shares before other classes.
• Cumulative preference - These shares carry a right that, if the dividend cannot be paid in one year, it will be carried forward to successive years.
• Redeemable - These shares are issued with an agreement that the company will buy them back at the option of the company or the shareholder after a certain period, or on a fixed date. A company cannot have redeemable shares only.