What Is a Share in a Company?

If you’re setting up or growing a limited company in the UK, you’ll hear the word “share” a lot. Shares affect who controls your company, how profits are distributed, and what happens if someone wants to join or exit the business.

In this guide, we’ll explain what a share is under UK law, the different types of shares you can issue, the rights they carry, and the practical steps to manage your cap table as your business grows. Getting this right early will help you stay compliant and protect your business from day one.

What Is A Share?

A share is a unit of ownership in your company. When someone holds shares in a limited company, they are a shareholder and own a fraction of the company’s value and rights. In the UK, shares are governed primarily by the Companies Act 2006 and your company’s Articles of Association (the rules for running the company).

Think of shares as “bundles of rights.” Typically, those rights include voting on key decisions, receiving dividends if profits are distributed, and a share of any remaining assets on winding up after debts are paid. You decide how many shares to issue, what kind they are, and the rights attached to them.

For many small businesses, share issues start simple and get more complex as you raise investment, reward team members, or restructure. Planning your share structure early will save time and reduce costly mistakes later. If you’re just at the beginning, this explainer on how to allocate shares in a startup is a helpful companion piece.

Types Of Shares In UK Companies

UK companies can create different classes of shares with different rights. The most common are:

• Ordinary shares – the standard class for most SMEs. They usually carry full voting rights and rights to dividends declared by the board.
• Non-voting or restricted voting shares – useful if you want an investor or team member to share in profits but not in control.
• Preference shares – typically have priority rights to fixed dividends or capital on a sale or winding up. They may be cumulative (unpaid dividends roll over) or non-cumulative.
• Redeemable shares – can be bought back by the company at a future date or on specified events (subject to Companies Act rules).

You can tailor classes so long as the rights are clearly set out in your Articles of Association and any shareholder agreements. When you change or create new share classes, you’ll generally need board and shareholder approval and to update Companies House filings.

Many founders choose to keep things simple at the start with just ordinary shares, then introduce preference or non-voting shares when investors come on board. The important thing is consistency and clarity: the class name should match the rights actually granted, and your records should reflect what’s been issued to whom.

What Rights Do Shares Usually Carry?

Unless varied by your company’s constitution, ordinary shares carry the following core rights:

• Voting rights: to vote on resolutions (e.g. appointing directors, issuing new shares, major transactions). Votes are often one vote per share, but you can set this differently for specific classes.
• Dividend rights: to receive dividends if and when they are declared out of distributable profits. There’s no guarantee of a dividend unless your share terms say so.
• Capital rights: on a winding up or sale, to share in the surplus after liabilities are settled, usually pro-rata to shareholding.
• Pre-emption rights: under the Companies Act 2006, existing shareholders generally have first refusal to buy new shares for cash before they’re offered to outsiders, unless those rights are disapplied.
• Information rights: to receive certain company information and notices, such as annual accounts and meeting documentation.

Special classes like preference shares can add extra rights (e.g. priority dividends or liquidation preferences) or remove some rights (e.g. voting). Your Articles of Association and any Shareholders Agreement should spell out the detail.

It’s wise to document clearly how dividends are decided, what happens if profit is retained for growth, and which decisions need unanimous consent. Clear rules reduce disputes and give investors confidence that governance is robust.

Issuing And Pricing Shares: Practical Steps For SMEs

When you issue shares, you’re creating ownership. Do it methodically to stay compliant and avoid headaches later.

1) Decide The Number And Class

Work out how many shares you’ll have in total, and the class(es) you need. Many startups begin with a round number (e.g. 100 or 10,000 ordinary shares) to make percentage splits neat, then create preference or non-voting classes if required.

2) Set The Price And Consider Value

Shares can have a nominal value (e.g. £0.01 per share). If you issue shares for more than nominal value, the extra goes into a share premium account, which has legal restrictions on how it’s used. New shares should be priced sensibly with reference to your company’s value to avoid tax and governance issues.

3) Follow Company Approvals And Pre-Emption Rules

Check if pre-emption rights apply (statutory or in your Articles). If they do, offer new shares to existing shareholders on a pro-rata basis, or formally disapply those rights where permitted. You’ll also need board approval, and in some cases, an ordinary or special resolution of shareholders, depending on your Articles and planned share class changes.

4) Paperwork And Filings

• Issue share certificates to new shareholders and update your register of members promptly.
• File the relevant forms with Companies House (e.g. SH01 for allotments) within statutory deadlines.
• Update your PSC register if there are changes to People with Significant Control.

5) Use The Right Agreements

If you’re raising capital, a Share Subscription Agreement sets out the terms of investment (price, warranties, closing conditions) and reduces risk on both sides.

For ongoing governance, a professionally drafted Shareholders Agreement can cover decision-making, exits, dividends, and what happens if someone leaves the business.

Avoid using generic templates or ad-hoc emails to document share deals-these are high-stakes transactions that benefit from tailored drafting.

Managing Ownership As You Grow: Investors, Options And Dilution

As your company scales, your ownership map (“cap table”) will evolve. Here’s what to keep in mind.

Understand Dilution

When you issue more shares, each existing shareholder’s percentage reduces unless they also buy in. This is called dilution. Dilution isn’t always bad-it can be the price of raising funds to grow-but it should be intentional, fair, and transparent.

Use Options To Incentivise Talent

Share options let you reward team members without giving away equity upfront. UK tax-advantaged EMI options are popular for startups that qualify, offering potential tax benefits and flexibility. You’ll need proper plan rules, option agreements, and HMRC notifications-don’t DIY this.

Stage Your Rounds And Keep Records Immaculate

Each funding round should have clear documentation, an updated cap table, correct filings, and aligned shareholder expectations. Investors will expect your records to be precise and reconciled with Companies House. Sloppy admin can slow deals and dent confidence.

Align Governance With Growth

Review your Articles of Association and Shareholders Agreement periodically to ensure they still reflect how decisions are made, board composition, and shareholder protections. It’s normal to update these documents when you bring in outside investors or create new share classes.

Essential Documents, Compliance And Taxes

Shares don’t exist in a vacuum-there’s a legal and tax framework to respect. Here’s a concise checklist.

Core Documents

• Articles of Association – set out rules for share classes, voting, and company governance.
• Shareholders Agreement – handles decision-making, transfers, exits, dividends, disputes, and deadlock.
• Board and shareholder resolutions – to authorise allotments, create new classes, or disapply pre-emption rights.
• Share certificates and an up-to-date register of members – legal proof of ownership and essential for deals.

Companies House And Records

• File allotments (SH01), changes to share capital, and updates to PSC details within deadlines.
• Keep your statutory books accurate: register of members, register of directors, and PSC register.
• Ensure share issuances match your filings and cap table. Mismatches are red flags in due diligence.

Tax Points To Note

• Stamp duty may apply on certain share transfers (generally 0.5% above £1,000 consideration). Understand the rules on stamp duty on shares before completing transfers.
• Dividends are paid from distributable profits; they’re not deductible for Corporation Tax. Improper “dividends” can create tax exposure.
• Share issues and options can have employment tax consequences; get advice when granting options or issuing shares to staff or directors.

Transfers, Buybacks And Changes

Shares can be transferred, bought back, or converted-each has specific processes and legal tests.

• Share transfers: follow any transfer restrictions in your Articles or Shareholders Agreement and process stock transfer forms correctly.
• Buybacks and redemptions: companies can repurchase or redeem shares in limited circumstances. There are strict Companies Act procedures and funding rules around redeeming shares or buybacks, including special resolutions and filings.
• Creating or varying classes: requires proper class consents and updated Articles. Don’t forget to reflect changes in your statutory registers and filings.

Because each scenario turns on the wording of your Articles, existing agreements, and the Companies Act, it’s smart to get tailored legal advice before you proceed.

Key Takeaways

• A share is a unit of ownership that bundles rights like voting, dividends, and capital returns. The Companies Act 2006 and your Articles of Association set the framework.
• Keep share classes simple at the start, then add preference, non-voting, or redeemable classes when needed-just make sure the rights are precisely documented and approved.
• When issuing shares, price them sensibly, respect pre-emption rights, pass the right resolutions, update registers, and file SH01 on time. Use a Share Subscription Agreement for investments.
• Plan for growth: understand dilution, maintain a clean cap table, and consider EMI options to attract and retain talent in a tax-efficient way.
• Stay compliant: issue share certificates promptly, maintain your member register, manage your share premium account correctly, and meet Companies House and tax obligations (including any stamp duty on share transfers).
• Protect relationships and decision-making with a robust Shareholders Agreement and keep your Articles of Association aligned with how you operate.
• Before changing share classes, transferring shares, or doing a buyback, get advice-procedural missteps can lead to invalid transactions and regulatory issues.

If you’d like help setting up your share structure, drafting the right documents, or staying compliant as you raise capital, you can reach our team at 08081347754 or team@sprintlaw.co.uk for a free, no-obligations chat.