A company is an independent legal entity which has members and in most cases members of a company will hold shares in the company. A share is the means by which a shareholder will hold its interest in a company, it will limit the shareholders liability and also specify rights in relation to that company. Shares have a nominal value – for example 1p or £1 and a share cannot be issued for less than that nominal value. So if you have 10 £1 shares in a company £10 is the total liability you will have in relation to your shareholding that company.
Quite often shares will be issued for more than their nominal value – for example a £1 share may be issued at a price of £10 and in this case the total value paid for the share will represent your total liability in the company. Shares have rights attaching to them and quite often all shares in a company have the same rights – normally such shares are called “ordinary shares”.
Different types of shares can be created in the same company to give different rights to the holders of different types of shares. The rights attaching to shares are set out in the articles of the company, or sometimes a shareholders agreement, so it is important to know what these are if you are either investing or looking for investors.
Common rights which shares have are:
- a right to a dividend
- effectively a share in the profits of the company;
- a right to vote in general meetings of the company; and
Examples of different rights which can be attached to different classes of shares are:
- a preferential rights to dividends (often called “preference shares”);
- no right to vote on any issues (“non-voting shares”); or
- weighted voting rights (“management shares”).
Hannah Ives - LawBite Company and Commercial LawBrief. You can find out more about Hannah in our Meet The Team section.