What is Share Capital?

What is Share Capital?

On registration of a company limited by shares, the shareholders must agree to take some, or all, of the shares in the company (all limited companies must have at least one shareholder detailed on the incorporation documents). Share capital is the money invested in a company by the shareholders and in exchange the number of shares of a specified nominal value (which may or may not be divided into one or more class of shares), the company issues to its shareholders. This investment in the company means the shareholders gain a share of the ownership of the company. Ownership of shares means control over the company. Each share must have a fixed nominal value; this is typically £1 but can be of any value.

Each share’s value indicates the amount the shareholder is liable to contribute (per share) if the company closes owing money. It is important to note that once an investment in a company’s share capital has been made, it is the company that owns the money provided. The shareholder will obtain a return on this investment through dividends (payments out of profits) and/or an increase in the value of the company when it is eventually sold.

The rights attaching to shares are imposed by the Companies Act 2006, the company’s articles of association and any shareholders’ agreement.

There is no ceiling on the number of shares that a company can issue (unless it chooses to impose one as the concept of authorised share capital was abolished by the Companies Act 2006) and therefore a company’s issued share capital is the number of shares actually subscribed for and issued by the company.