Law guide: Business start-up

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Share capital

Share capital

A company is financed initially by the contributions of the shareholders. The share capital is the total value of the company's shares. When the company is registered ('incorporated'), shares are normally issued to the shareholders in proportion to the amount of money they contribute to the overall share capital of the company.

The value of the shares stated in the Statement of Capital in Part 3 of the application to register a company (Form IN01) is the 'nominal value' of the shares. This is the face value of the shares. For example, if a company is formed with 1,000 £1 shares, each share would have a 'nominal value' of £1 and the 'aggregate nominal value' of the share capital would be £1,000.

As the company progresses, the directors could also decide to issue more shares to get more investment.

There are also other ways of financing the company's operations, such as loans, but loans don't change the share capital of the company.

Classes of shares

Most companies have only one class of shares, known as 'ordinary shares'. However, it's possible for a company to create different classes of shares, each with different rights for the shareholder. All the shares in a class have the same rights.

Preference shares

The directors can decide to issue 'preference shares', entitling the shareholders to some kind of preferential right, such as the right to be paid dividends before ordinary shareholders. The directors can decide on the special rights attached to these shares.

Redeemable shares

The directors can also issue 'redeemable shares'. These are shares that can be bought back after a certain period of time or on a fixed date.

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