Set up a private limited company

Most limited companies are ‘limited by shares’. This means they’re owned by shareholders, who have certain rights. For example, directors may need shareholders to vote and agree changes to the company.

Companies limited by guarantee have guarantors and a ‘guaranteed amount’ instead of shareholders and shares.

Most companies have ‘ordinary’ shares. This means directors get one vote on company decisions per share and receive dividend payments.

Work out your shares

A company limited by shares must have at least one shareholder, who can be a director. If you’re the only shareholder, you’ll own 100% of the company. There’s no maximum number of shareholders.

The price of an individual share can be any value. Shareholders will need to pay for their shares in full if the company has to shut down. You can choose a low share value (for example, £1) to limit the shareholders’ liability to a reasonable amount.

Issuing your initial shares

When you register a company you need to provide information about the shares (known as a ‘statement of capital’). This includes:

• the number of shares of each type the company has and their total value – known as the company’s ‘share capital’
• the names and addresses of all shareholders – known as ‘subscribers’ or ‘members’

Example

A company that issues 500 shares at £1 each has a share capital of £500.
Share capital is not linked to how much the company is worth.

Prescribed particulars

You also need to include information about what rights each type of share (known as ‘class’) gives the shareholder. This information is known as ‘prescribed particulars’ and must include:

• what share of dividends they get
• whether they can exchange (‘redeem’) their shares for money
• whether they can vote on certain company matters
• how many votes they get

Companies limited by guarantee

You must have at least one guarantor and a ‘guaranteed amount’.

Guarantors:

• are company members
• control the company and make important decisions
• do not usually take profit from the company – instead the money is kept within the company or used for other purposes

Guaranteed amount

Guarantors promise an agreed amount of money to the company if it cannot pay its debts. This is the ‘guaranteed amount’.

They must pay the company the full amount of their guarantee.

This payment covers guarantors for situations such as the company being closed down. The guaranteed amount is not linked to how much the company is worth – you choose how much they pay.