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What is a Shareholder?

What is a Shareholder?

A shareholder is the registered owner of shares in a company. A shareholder is also referred to as a member of a company. On becoming a member of a company, that shareholder enters into a contractual relationship with the company. The articles of association of the company bind the company and its members in the same way that a contract would (subject to the fact that the articles can be amended – or replaced - by the shareholders at any time by special resolution). Shareholders will often also be bound by a shareholders agreement between the company’s members (and the company) to regulate certain aspects of their relationship.

As the company has a separate legal personality, the shareholders are not liable for the acts of the company (except in certain limited circumstances) but likewise, the shareholders do not have a proprietary interest in the underlying assets of the company. The shareholders are however entitled in proportion to their respective share, to a share of the distributable profits of the company and on a winding up to the surplus assets of the company after the creditors have been repaid.

It is also worth noting that the definition of a shareholder of a company is concerned with the legal ownership of the shares, i.e. the person whose name appears on the register of members. This may however not reflect the actual ownership situation. The legal and beneficial ownership of shares can, and often is, separated for both practical and commercial reasons. Whilst only the legal owner will appear on the register of members, the shares may actually be owned by a beneficial owner, this could be to reflect a trust or lending arrangement. In such an arrangement there will often be a declaration of trust agreement between the legal and beneficial owner of the shares.

There have been changes made in respect of the transparency of ownership of private companies. Since 6th April 2016, UK incorporated companies, LLPs and Societates Europaeae have been required to identify and record the people with significant control over them (PSCs). This includes those who own or control (directly or indirectly) more than 25% of the entity. Companies (and LLPs) have been required to file this information with Companies House since 30th June 2016. For further details, please see our Guidance on the PSC Regime which provides an overview of the key points

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