Shares represent ownership of a company. When an individual buys shares in your company, they become one of its owners. Shareholders choose who runs a company and are involved in making key decisions, such as whether a business should be sold.

While shares are most obviously associated with the stock market, most small businesses don't go near a stock market in their lifetime. They are more likely to issue shares in their company in return for a lump sum investment. This investment may either come from friends and family or, for businesses that are looking for capital to fund high growth, through formal equity funding finance.

Formal equity finance is available through:

• business angel investors
• venture capital firms
• stock markets

These investors are willing to put up capital for a share in a growth business. The advantage of raising money in this way is that you don't have to pay the money back or pay interest to the investors. Instead, shareholders are entitled to a share of the distributable profits of the company, known as dividends.

For further information see types of shares.

Issuing shares in your company on a stock market can provide the following benefits:

• new finance
• an exit for founding investors who want to realise their investment
• a mechanism for investors to trade shares
• a market valuation for the company
• an incentive for staff using shares or share options
• an acquisition currency in the form of shares
• a way to raise your business' profile

There are also some potential drawbacks to issuing shares:

• diluted ownership
• reduced control of your business
• loss of privacy
• administration costs
• you may have to offer a monthly or quarterly dividend to investors
• you may require the services of a solicitor or accountant

Find more information on business angels and venture capital.

When you set up a company with share capital, you can decide on the level of share capital and its division into fixed priced shares.

A statement of capital and initial shareholdings must be delivered to Companies House on form IN01 on incorporation of the company.

This will set out:

• the amount of share capital the company will have
• the division of the share capital

Family or friends

You may choose to issue shares to family or friends in return for investment in your business, rather than accepting the offer of a loan from them. That way you're not obliged to make repayments. It is important to formalise any agreement with family members or friends as this can help you avoid or resolve any disputes that may arise in future. See financing from friends and family.

Employees

Employee share ownership schemes offer employees a stake in the business, encouraging loyalty and helping you to retain key staff. They also provide an incentive or reward for performance and can help recruitment. See set up employee share schemes.

Issued capital

A company need not issue all its capital at once. Issued capital is the nominal - rather than actual - value of the part of the share capital that has been issued to shareholders.

For example, a company that issues 500 shares at £1 each has an issued share capital of £500.

Public limited companies (plcs) must have at least £50,000 worth of issued share capital before they are allowed to trade. Initially they must satisfy this requirement by means of shares in sterling or in euro shares (and not by a combination of the two).

Once a plc has started to trade, the requirement can be satisfied by means of share capital denominated in multiple currencies (including currencies other than sterling or euros). Every share issued by a plc must be paid up at least as to a quarter of its nominal value - plus the whole of any premium from issuing the shares at a higher price.

Limited companies must notify Companies House of any new shares issued. They can do this by completing form SH01.

A company may have many different types of shares that come with different conditions and rights in relation to profit entitlement, entitlement to capital if the business is wound up and voting rights within the business.

The five main types of shares are:

1. Ordinary shares

These are the most common type of shares and are standard shares with no special rights or restrictions. They have the potential to give the highest financial gains, but also have the highest risk. Ordinary shareholders are entitled to voting rights, however, they are the last to be paid if the company is wound up.

2. Non-voting ordinary shares

These shares carry the same conditions as ordinary shares except with regards to voting rights. Shareholders may have voting rights under certain circumstances or they may have no voting rights at all.

3. Preference shares

Preference shares typically carry a right that gives the holder preferential treatment when annual dividends are distributed to shareholders. Shares in this category receive a fixed dividend, which means that a shareholder would not benefit from an increase in the business' profits. However, usually they have rights to their dividend ahead of ordinary shareholders if the business is in trouble. Preference shares carry no voting rights.

4. Cumulative preference shares

These shares give holders the right that, if a dividend cannot be paid one year, it will be carried forward to successive years. Dividends on cumulative preference shares must be paid, despite the earning levels of the business, provided the company has profits that can be distributed.

5. Redeemable shares

Redeemable shares come with an agreement that the company can buy them back at a future date - this can be at a fixed date or at the choice of the business. A company cannot issue only redeemable shares, so they must ensure that they also issue non-reedeemable shares.

Most companies use ordinary shares, however, it is possible to issue more than one kind of share class as a way to vary shareholder voting, dividend and capital rights.

If you are considering issuing various types of shares in your company, it would be advisable to speak to an accountant. Choose an accountant for your business.

Companies House provide guidance for limited companies, partnerships and other company types.

For information on how you can use these shares as an employee incentive, see set up employee share schemes.

Share dealing is a complex area and specialist advice should be sought from solicitors, accountants and company law agencies.

Transfer and transmission of shares

Shares in a listed company are transferred through brokers using the Stock Exchange Euroclear service. However, in a private or unlimited company, shares are usually transferred by private agreement between the seller and buyer, subject to the company's rules and approval of the directors.

Certain taxes apply when you transfer or sell shares:

• If you are transferring shares yourself using a paper stock transfer form Stamp Duty may be payable when the value is over certain limits.
• Stamp Duty reserve tax is normally payable when you transfer shares through a broker using the Euroclear service.
• Any gains you have made on selling shares may be subject to Capital Gains Tax. GOV.UK provides further guidance on tax when you sell shares.

When a shareholder dies or becomes bankrupt, their shares and the rights associated with them must be given to a personal representative or executor.

Issuing a prospectus

If you want to list your company on the Stock Exchange, or offer unlisted securities to the public, you need to publish a prospectus or listing particulars. Only a public limited company can do this.

The prospectus has three main functions:

• setting out all the information that you must make public under the Listing Rules
• acting as a marketing tool for shares in your company by describing the business and its prospects
• setting out the price of your company's shares and how much capital you hope to raise

The Financial Services Authority must approve the prospectus.

At the end of a calendar year, a company's board decides whether the business has done well enough to pay shareholders a dividend. A dividend is a part of the company's profits that is given to shareholders. In larger companies, it is common for an interim dividend to be paid at the half-year point. The dividend is calculated per share, so the more shares you own, the more money you get. Dividends attract income tax, but not National Insurance charges.

Many company share schemes allow employee shareholders to reinvest dividends in further shares called dividend shares. 

GOV.UK provides more guidance around tax on savings and investments.

When paying dividends, the company must send a dividend voucher to the shareholder by post. This shows the amount of the dividend and the amount of tax credit. The tax credit indicates the amount of tax paid by the company on the shareholder's behalf. Dividends are paid after tax has been deducted at the basic rate. If you pay a higher rate of tax, you may be liable to pay additional tax on your dividend.

Companies can pay dividends electronically if a shareholder agrees to it. Companies no longer need to send a dividend voucher in such cases.

Companies can alter their share capital through a number of routes. You should consult your accountant or legal adviser to find the best route for you.

To notify Companies House of a reduction of capital, you must complete Companies House form SH19 Statement of Capital.

There is a fee to register a reduction in share capital. The fee varies depending on whether or not you want to register the change on the same day that you submit the documentation. The fee should be attached to the SH19 form.

All current fees are given on the relevant forms to be sent to Companies House.

Issuing shares to a new shareholder

A company can issue shares to a new shareholder by authorising the directors to allot shares. The authority can be in the articles or given by an ordinary or elective resolution. Allotment creates a right to be issued with the shares. Companies House form SH01 must be completed and returned within a month of the allotment of new shares.

Companies must notify Companies House of any new shares issued - they can do this by completing form SH01.

Changing the shares

A company can consolidate or subdivide its share capital if authorised to do so by the articles. Consolidation is when the shares are put together and then divided into shares of larger amounts, eg 200 shares of £1 are consolidated to create 100 shares of £2. Subdivision is when shares are divided into smaller amounts.

To consolidate or subdivide shares, a company must pass an ordinary resolution, then send the resolution and a completed form SH02 to Companies House within a month of the change.

Shares represent ownership of a company. When an individual buys shares in your company, they become one of its owners. Shareholders choose who runs a company and are involved in making key decisions, such as whether a business should be sold.

While shares are most obviously associated with the stock market, most small businesses don't go near a stock market in their lifetime. They are more likely to issue shares in their company in return for a lump sum investment. This investment may either come from friends and family or, for businesses that are looking for capital to fund high growth, through formal equity funding finance.

Formal equity finance is available through:

• business angel investors
• venture capital firms
• stock markets

These investors are willing to put up capital for a share in a growth business. The advantage of raising money in this way is that you don't have to pay the money back or pay interest to the investors. Instead, shareholders are entitled to a share of the distributable profits of the company, known as dividends.

For further information see types of shares.

Issuing shares in your company on a stock market can provide the following benefits:

• new finance
• an exit for founding investors who want to realise their investment
• a mechanism for investors to trade shares
• a market valuation for the company
• an incentive for staff using shares or share options
• an acquisition currency in the form of shares
• a way to raise your business' profile

There are also some potential drawbacks to issuing shares:

• diluted ownership
• reduced control of your business
• loss of privacy
• administration costs
• you may have to offer a monthly or quarterly dividend to investors
• you may require the services of a solicitor or accountant

Find more information on business angels and venture capital.

When you set up a company with share capital, you can decide on the level of share capital and its division into fixed priced shares.

A statement of capital and initial shareholdings must be delivered to Companies House on form IN01 on incorporation of the company.

This will set out:

• the amount of share capital the company will have
• the division of the share capital

Family or friends

You may choose to issue shares to family or friends in return for investment in your business, rather than accepting the offer of a loan from them. That way you're not obliged to make repayments. It is important to formalise any agreement with family members or friends as this can help you avoid or resolve any disputes that may arise in future. See financing from friends and family.

Employees

Employee share ownership schemes offer employees a stake in the business, encouraging loyalty and helping you to retain key staff. They also provide an incentive or reward for performance and can help recruitment. See set up employee share schemes.

Issued capital

A company need not issue all its capital at once. Issued capital is the nominal - rather than actual - value of the part of the share capital that has been issued to shareholders.

For example, a company that issues 500 shares at £1 each has an issued share capital of £500.

Public limited companies (plcs) must have at least £50,000 worth of issued share capital before they are allowed to trade. Initially they must satisfy this requirement by means of shares in sterling or in euro shares (and not by a combination of the two).

Once a plc has started to trade, the requirement can be satisfied by means of share capital denominated in multiple currencies (including currencies other than sterling or euros). Every share issued by a plc must be paid up at least as to a quarter of its nominal value - plus the whole of any premium from issuing the shares at a higher price.

Limited companies must notify Companies House of any new shares issued. They can do this by completing form SH01.

A company may have many different types of shares that come with different conditions and rights in relation to profit entitlement, entitlement to capital if the business is wound up and voting rights within the business.

The five main types of shares are:

1. Ordinary shares

These are the most common type of shares and are standard shares with no special rights or restrictions. They have the potential to give the highest financial gains, but also have the highest risk. Ordinary shareholders are entitled to voting rights, however, they are the last to be paid if the company is wound up.

2. Non-voting ordinary shares

These shares carry the same conditions as ordinary shares except with regards to voting rights. Shareholders may have voting rights under certain circumstances or they may have no voting rights at all.

3. Preference shares

Preference shares typically carry a right that gives the holder preferential treatment when annual dividends are distributed to shareholders. Shares in this category receive a fixed dividend, which means that a shareholder would not benefit from an increase in the business' profits. However, usually they have rights to their dividend ahead of ordinary shareholders if the business is in trouble. Preference shares carry no voting rights.

4. Cumulative preference shares

These shares give holders the right that, if a dividend cannot be paid one year, it will be carried forward to successive years. Dividends on cumulative preference shares must be paid, despite the earning levels of the business, provided the company has profits that can be distributed.

5. Redeemable shares

Redeemable shares come with an agreement that the company can buy them back at a future date - this can be at a fixed date or at the choice of the business. A company cannot issue only redeemable shares, so they must ensure that they also issue non-reedeemable shares.

Most companies use ordinary shares, however, it is possible to issue more than one kind of share class as a way to vary shareholder voting, dividend and capital rights.

If you are considering issuing various types of shares in your company, it would be advisable to speak to an accountant. Choose an accountant for your business.

Companies House provide guidance for limited companies, partnerships and other company types.

For information on how you can use these shares as an employee incentive, see set up employee share schemes.

Share dealing is a complex area and specialist advice should be sought from solicitors, accountants and company law agencies.

Transfer and transmission of shares

Shares in a listed company are transferred through brokers using the Stock Exchange Euroclear service. However, in a private or unlimited company, shares are usually transferred by private agreement between the seller and buyer, subject to the company's rules and approval of the directors.

Certain taxes apply when you transfer or sell shares:

• If you are transferring shares yourself using a paper stock transfer form Stamp Duty may be payable when the value is over certain limits.
• Stamp Duty reserve tax is normally payable when you transfer shares through a broker using the Euroclear service.
• Any gains you have made on selling shares may be subject to Capital Gains Tax. GOV.UK provides further guidance on tax when you sell shares.

When a shareholder dies or becomes bankrupt, their shares and the rights associated with them must be given to a personal representative or executor.

Issuing a prospectus

If you want to list your company on the Stock Exchange, or offer unlisted securities to the public, you need to publish a prospectus or listing particulars. Only a public limited company can do this.

The prospectus has three main functions:

• setting out all the information that you must make public under the Listing Rules
• acting as a marketing tool for shares in your company by describing the business and its prospects
• setting out the price of your company's shares and how much capital you hope to raise

The Financial Services Authority must approve the prospectus.

At the end of a calendar year, a company's board decides whether the business has done well enough to pay shareholders a dividend. A dividend is a part of the company's profits that is given to shareholders. In larger companies, it is common for an interim dividend to be paid at the half-year point. The dividend is calculated per share, so the more shares you own, the more money you get. Dividends attract income tax, but not National Insurance charges.

Many company share schemes allow employee shareholders to reinvest dividends in further shares called dividend shares. 

GOV.UK provides more guidance around tax on savings and investments.

When paying dividends, the company must send a dividend voucher to the shareholder by post. This shows the amount of the dividend and the amount of tax credit. The tax credit indicates the amount of tax paid by the company on the shareholder's behalf. Dividends are paid after tax has been deducted at the basic rate. If you pay a higher rate of tax, you may be liable to pay additional tax on your dividend.

Companies can pay dividends electronically if a shareholder agrees to it. Companies no longer need to send a dividend voucher in such cases.

Companies can alter their share capital through a number of routes. You should consult your accountant or legal adviser to find the best route for you.

To notify Companies House of a reduction of capital, you must complete Companies House form SH19 Statement of Capital.

There is a fee to register a reduction in share capital. The fee varies depending on whether or not you want to register the change on the same day that you submit the documentation. The fee should be attached to the SH19 form.

All current fees are given on the relevant forms to be sent to Companies House.

Issuing shares to a new shareholder

A company can issue shares to a new shareholder by authorising the directors to allot shares. The authority can be in the articles or given by an ordinary or elective resolution. Allotment creates a right to be issued with the shares. Companies House form SH01 must be completed and returned within a month of the allotment of new shares.

Companies must notify Companies House of any new shares issued - they can do this by completing form SH01.

Changing the shares

A company can consolidate or subdivide its share capital if authorised to do so by the articles. Consolidation is when the shares are put together and then divided into shares of larger amounts, eg 200 shares of £1 are consolidated to create 100 shares of £2. Subdivision is when shares are divided into smaller amounts.

To consolidate or subdivide shares, a company must pass an ordinary resolution, then send the resolution and a completed form SH02 to Companies House within a month of the change.

Shares represent ownership of a company. When an individual buys shares in your company, they become one of its owners. Shareholders choose who runs a company and are involved in making key decisions, such as whether a business should be sold.

While shares are most obviously associated with the stock market, most small businesses don't go near a stock market in their lifetime. They are more likely to issue shares in their company in return for a lump sum investment. This investment may either come from friends and family or, for businesses that are looking for capital to fund high growth, through formal equity funding finance.

Formal equity finance is available through:

• business angel investors
• venture capital firms
• stock markets

These investors are willing to put up capital for a share in a growth business. The advantage of raising money in this way is that you don't have to pay the money back or pay interest to the investors. Instead, shareholders are entitled to a share of the distributable profits of the company, known as dividends.

For further information see types of shares.

Issuing shares in your company on a stock market can provide the following benefits:

• new finance
• an exit for founding investors who want to realise their investment
• a mechanism for investors to trade shares
• a market valuation for the company
• an incentive for staff using shares or share options
• an acquisition currency in the form of shares
• a way to raise your business' profile

There are also some potential drawbacks to issuing shares:

• diluted ownership
• reduced control of your business
• loss of privacy
• administration costs
• you may have to offer a monthly or quarterly dividend to investors
• you may require the services of a solicitor or accountant

Find more information on business angels and venture capital.

When you set up a company with share capital, you can decide on the level of share capital and its division into fixed priced shares.

A statement of capital and initial shareholdings must be delivered to Companies House on form IN01 on incorporation of the company.

This will set out:

• the amount of share capital the company will have
• the division of the share capital

Family or friends

You may choose to issue shares to family or friends in return for investment in your business, rather than accepting the offer of a loan from them. That way you're not obliged to make repayments. It is important to formalise any agreement with family members or friends as this can help you avoid or resolve any disputes that may arise in future. See financing from friends and family.

Employees

Employee share ownership schemes offer employees a stake in the business, encouraging loyalty and helping you to retain key staff. They also provide an incentive or reward for performance and can help recruitment. See set up employee share schemes.

Issued capital

A company need not issue all its capital at once. Issued capital is the nominal - rather than actual - value of the part of the share capital that has been issued to shareholders.

For example, a company that issues 500 shares at £1 each has an issued share capital of £500.

Public limited companies (plcs) must have at least £50,000 worth of issued share capital before they are allowed to trade. Initially they must satisfy this requirement by means of shares in sterling or in euro shares (and not by a combination of the two).

Once a plc has started to trade, the requirement can be satisfied by means of share capital denominated in multiple currencies (including currencies other than sterling or euros). Every share issued by a plc must be paid up at least as to a quarter of its nominal value - plus the whole of any premium from issuing the shares at a higher price.

Limited companies must notify Companies House of any new shares issued. They can do this by completing form SH01.

A company may have many different types of shares that come with different conditions and rights in relation to profit entitlement, entitlement to capital if the business is wound up and voting rights within the business.

The five main types of shares are:

1. Ordinary shares

These are the most common type of shares and are standard shares with no special rights or restrictions. They have the potential to give the highest financial gains, but also have the highest risk. Ordinary shareholders are entitled to voting rights, however, they are the last to be paid if the company is wound up.

2. Non-voting ordinary shares

These shares carry the same conditions as ordinary shares except with regards to voting rights. Shareholders may have voting rights under certain circumstances or they may have no voting rights at all.

3. Preference shares

Preference shares typically carry a right that gives the holder preferential treatment when annual dividends are distributed to shareholders. Shares in this category receive a fixed dividend, which means that a shareholder would not benefit from an increase in the business' profits. However, usually they have rights to their dividend ahead of ordinary shareholders if the business is in trouble. Preference shares carry no voting rights.

4. Cumulative preference shares

These shares give holders the right that, if a dividend cannot be paid one year, it will be carried forward to successive years. Dividends on cumulative preference shares must be paid, despite the earning levels of the business, provided the company has profits that can be distributed.

5. Redeemable shares

Redeemable shares come with an agreement that the company can buy them back at a future date - this can be at a fixed date or at the choice of the business. A company cannot issue only redeemable shares, so they must ensure that they also issue non-reedeemable shares.

Most companies use ordinary shares, however, it is possible to issue more than one kind of share class as a way to vary shareholder voting, dividend and capital rights.

If you are considering issuing various types of shares in your company, it would be advisable to speak to an accountant. Choose an accountant for your business.

Companies House provide guidance for limited companies, partnerships and other company types.

For information on how you can use these shares as an employee incentive, see set up employee share schemes.

Share dealing is a complex area and specialist advice should be sought from solicitors, accountants and company law agencies.

Transfer and transmission of shares

Shares in a listed company are transferred through brokers using the Stock Exchange Euroclear service. However, in a private or unlimited company, shares are usually transferred by private agreement between the seller and buyer, subject to the company's rules and approval of the directors.

Certain taxes apply when you transfer or sell shares:

• If you are transferring shares yourself using a paper stock transfer form Stamp Duty may be payable when the value is over certain limits.
• Stamp Duty reserve tax is normally payable when you transfer shares through a broker using the Euroclear service.
• Any gains you have made on selling shares may be subject to Capital Gains Tax. GOV.UK provides further guidance on tax when you sell shares.

When a shareholder dies or becomes bankrupt, their shares and the rights associated with them must be given to a personal representative or executor.

Issuing a prospectus

If you want to list your company on the Stock Exchange, or offer unlisted securities to the public, you need to publish a prospectus or listing particulars. Only a public limited company can do this.

The prospectus has three main functions:

• setting out all the information that you must make public under the Listing Rules
• acting as a marketing tool for shares in your company by describing the business and its prospects
• setting out the price of your company's shares and how much capital you hope to raise

The Financial Services Authority must approve the prospectus.

At the end of a calendar year, a company's board decides whether the business has done well enough to pay shareholders a dividend. A dividend is a part of the company's profits that is given to shareholders. In larger companies, it is common for an interim dividend to be paid at the half-year point. The dividend is calculated per share, so the more shares you own, the more money you get. Dividends attract income tax, but not National Insurance charges.

Many company share schemes allow employee shareholders to reinvest dividends in further shares called dividend shares. 

GOV.UK provides more guidance around tax on savings and investments.

When paying dividends, the company must send a dividend voucher to the shareholder by post. This shows the amount of the dividend and the amount of tax credit. The tax credit indicates the amount of tax paid by the company on the shareholder's behalf. Dividends are paid after tax has been deducted at the basic rate. If you pay a higher rate of tax, you may be liable to pay additional tax on your dividend.

Companies can pay dividends electronically if a shareholder agrees to it. Companies no longer need to send a dividend voucher in such cases.

Companies can alter their share capital through a number of routes. You should consult your accountant or legal adviser to find the best route for you.

To notify Companies House of a reduction of capital, you must complete Companies House form SH19 Statement of Capital.

There is a fee to register a reduction in share capital. The fee varies depending on whether or not you want to register the change on the same day that you submit the documentation. The fee should be attached to the SH19 form.

All current fees are given on the relevant forms to be sent to Companies House.

Issuing shares to a new shareholder

A company can issue shares to a new shareholder by authorising the directors to allot shares. The authority can be in the articles or given by an ordinary or elective resolution. Allotment creates a right to be issued with the shares. Companies House form SH01 must be completed and returned within a month of the allotment of new shares.

Companies must notify Companies House of any new shares issued - they can do this by completing form SH01.

Changing the shares

A company can consolidate or subdivide its share capital if authorised to do so by the articles. Consolidation is when the shares are put together and then divided into shares of larger amounts, eg 200 shares of £1 are consolidated to create 100 shares of £2. Subdivision is when shares are divided into smaller amounts.

To consolidate or subdivide shares, a company must pass an ordinary resolution, then send the resolution and a completed form SH02 to Companies House within a month of the change.

Shares represent ownership of a company. When an individual buys shares in your company, they become one of its owners. Shareholders choose who runs a company and are involved in making key decisions, such as whether a business should be sold.

While shares are most obviously associated with the stock market, most small businesses don't go near a stock market in their lifetime. They are more likely to issue shares in their company in return for a lump sum investment. This investment may either come from friends and family or, for businesses that are looking for capital to fund high growth, through formal equity funding finance.

Formal equity finance is available through:

• business angel investors
• venture capital firms
• stock markets

These investors are willing to put up capital for a share in a growth business. The advantage of raising money in this way is that you don't have to pay the money back or pay interest to the investors. Instead, shareholders are entitled to a share of the distributable profits of the company, known as dividends.

For further information see types of shares.

Issuing shares in your company on a stock market can provide the following benefits:

• new finance
• an exit for founding investors who want to realise their investment
• a mechanism for investors to trade shares
• a market valuation for the company
• an incentive for staff using shares or share options
• an acquisition currency in the form of shares
• a way to raise your business' profile

There are also some potential drawbacks to issuing shares:

• diluted ownership
• reduced control of your business
• loss of privacy
• administration costs
• you may have to offer a monthly or quarterly dividend to investors
• you may require the services of a solicitor or accountant

Find more information on business angels and venture capital.

When you set up a company with share capital, you can decide on the level of share capital and its division into fixed priced shares.

A statement of capital and initial shareholdings must be delivered to Companies House on form IN01 on incorporation of the company.

This will set out:

• the amount of share capital the company will have
• the division of the share capital

Family or friends

You may choose to issue shares to family or friends in return for investment in your business, rather than accepting the offer of a loan from them. That way you're not obliged to make repayments. It is important to formalise any agreement with family members or friends as this can help you avoid or resolve any disputes that may arise in future. See financing from friends and family.

Employees

Employee share ownership schemes offer employees a stake in the business, encouraging loyalty and helping you to retain key staff. They also provide an incentive or reward for performance and can help recruitment. See set up employee share schemes.

Issued capital

A company need not issue all its capital at once. Issued capital is the nominal - rather than actual - value of the part of the share capital that has been issued to shareholders.

For example, a company that issues 500 shares at £1 each has an issued share capital of £500.

Public limited companies (plcs) must have at least £50,000 worth of issued share capital before they are allowed to trade. Initially they must satisfy this requirement by means of shares in sterling or in euro shares (and not by a combination of the two).

Once a plc has started to trade, the requirement can be satisfied by means of share capital denominated in multiple currencies (including currencies other than sterling or euros). Every share issued by a plc must be paid up at least as to a quarter of its nominal value - plus the whole of any premium from issuing the shares at a higher price.

Limited companies must notify Companies House of any new shares issued. They can do this by completing form SH01.

A company may have many different types of shares that come with different conditions and rights in relation to profit entitlement, entitlement to capital if the business is wound up and voting rights within the business.

The five main types of shares are:

1. Ordinary shares

These are the most common type of shares and are standard shares with no special rights or restrictions. They have the potential to give the highest financial gains, but also have the highest risk. Ordinary shareholders are entitled to voting rights, however, they are the last to be paid if the company is wound up.

2. Non-voting ordinary shares

These shares carry the same conditions as ordinary shares except with regards to voting rights. Shareholders may have voting rights under certain circumstances or they may have no voting rights at all.

3. Preference shares

Preference shares typically carry a right that gives the holder preferential treatment when annual dividends are distributed to shareholders. Shares in this category receive a fixed dividend, which means that a shareholder would not benefit from an increase in the business' profits. However, usually they have rights to their dividend ahead of ordinary shareholders if the business is in trouble. Preference shares carry no voting rights.

4. Cumulative preference shares

These shares give holders the right that, if a dividend cannot be paid one year, it will be carried forward to successive years. Dividends on cumulative preference shares must be paid, despite the earning levels of the business, provided the company has profits that can be distributed.

5. Redeemable shares

Redeemable shares come with an agreement that the company can buy them back at a future date - this can be at a fixed date or at the choice of the business. A company cannot issue only redeemable shares, so they must ensure that they also issue non-reedeemable shares.

Most companies use ordinary shares, however, it is possible to issue more than one kind of share class as a way to vary shareholder voting, dividend and capital rights.

If you are considering issuing various types of shares in your company, it would be advisable to speak to an accountant. Choose an accountant for your business.

Companies House provide guidance for limited companies, partnerships and other company types.

For information on how you can use these shares as an employee incentive, see set up employee share schemes.

Share dealing is a complex area and specialist advice should be sought from solicitors, accountants and company law agencies.

Transfer and transmission of shares

Shares in a listed company are transferred through brokers using the Stock Exchange Euroclear service. However, in a private or unlimited company, shares are usually transferred by private agreement between the seller and buyer, subject to the company's rules and approval of the directors.

Certain taxes apply when you transfer or sell shares:

• If you are transferring shares yourself using a paper stock transfer form Stamp Duty may be payable when the value is over certain limits.
• Stamp Duty reserve tax is normally payable when you transfer shares through a broker using the Euroclear service.
• Any gains you have made on selling shares may be subject to Capital Gains Tax. GOV.UK provides further guidance on tax when you sell shares.

When a shareholder dies or becomes bankrupt, their shares and the rights associated with them must be given to a personal representative or executor.

Issuing a prospectus

If you want to list your company on the Stock Exchange, or offer unlisted securities to the public, you need to publish a prospectus or listing particulars. Only a public limited company can do this.

The prospectus has three main functions:

• setting out all the information that you must make public under the Listing Rules
• acting as a marketing tool for shares in your company by describing the business and its prospects
• setting out the price of your company's shares and how much capital you hope to raise

The Financial Services Authority must approve the prospectus.

At the end of a calendar year, a company's board decides whether the business has done well enough to pay shareholders a dividend. A dividend is a part of the company's profits that is given to shareholders. In larger companies, it is common for an interim dividend to be paid at the half-year point. The dividend is calculated per share, so the more shares you own, the more money you get. Dividends attract income tax, but not National Insurance charges.

Many company share schemes allow employee shareholders to reinvest dividends in further shares called dividend shares. 

GOV.UK provides more guidance around tax on savings and investments.

When paying dividends, the company must send a dividend voucher to the shareholder by post. This shows the amount of the dividend and the amount of tax credit. The tax credit indicates the amount of tax paid by the company on the shareholder's behalf. Dividends are paid after tax has been deducted at the basic rate. If you pay a higher rate of tax, you may be liable to pay additional tax on your dividend.

Companies can pay dividends electronically if a shareholder agrees to it. Companies no longer need to send a dividend voucher in such cases.

Companies can alter their share capital through a number of routes. You should consult your accountant or legal adviser to find the best route for you.

To notify Companies House of a reduction of capital, you must complete Companies House form SH19 Statement of Capital.

There is a fee to register a reduction in share capital. The fee varies depending on whether or not you want to register the change on the same day that you submit the documentation. The fee should be attached to the SH19 form.

All current fees are given on the relevant forms to be sent to Companies House.

Issuing shares to a new shareholder

A company can issue shares to a new shareholder by authorising the directors to allot shares. The authority can be in the articles or given by an ordinary or elective resolution. Allotment creates a right to be issued with the shares. Companies House form SH01 must be completed and returned within a month of the allotment of new shares.

Companies must notify Companies House of any new shares issued - they can do this by completing form SH01.

Changing the shares

A company can consolidate or subdivide its share capital if authorised to do so by the articles. Consolidation is when the shares are put together and then divided into shares of larger amounts, eg 200 shares of £1 are consolidated to create 100 shares of £2. Subdivision is when shares are divided into smaller amounts.

To consolidate or subdivide shares, a company must pass an ordinary resolution, then send the resolution and a completed form SH02 to Companies House within a month of the change.

Shares represent ownership of a company. When an individual buys shares in your company, they become one of its owners. Shareholders choose who runs a company and are involved in making key decisions, such as whether a business should be sold.

While shares are most obviously associated with the stock market, most small businesses don't go near a stock market in their lifetime. They are more likely to issue shares in their company in return for a lump sum investment. This investment may either come from friends and family or, for businesses that are looking for capital to fund high growth, through formal equity funding finance.

Formal equity finance is available through:

• business angel investors
• venture capital firms
• stock markets

These investors are willing to put up capital for a share in a growth business. The advantage of raising money in this way is that you don't have to pay the money back or pay interest to the investors. Instead, shareholders are entitled to a share of the distributable profits of the company, known as dividends.

For further information see types of shares.

Issuing shares in your company on a stock market can provide the following benefits:

• new finance
• an exit for founding investors who want to realise their investment
• a mechanism for investors to trade shares
• a market valuation for the company
• an incentive for staff using shares or share options
• an acquisition currency in the form of shares
• a way to raise your business' profile

There are also some potential drawbacks to issuing shares:

• diluted ownership
• reduced control of your business
• loss of privacy
• administration costs
• you may have to offer a monthly or quarterly dividend to investors
• you may require the services of a solicitor or accountant

Find more information on business angels and venture capital.

When you set up a company with share capital, you can decide on the level of share capital and its division into fixed priced shares.

A statement of capital and initial shareholdings must be delivered to Companies House on form IN01 on incorporation of the company.

This will set out:

• the amount of share capital the company will have
• the division of the share capital

Family or friends

You may choose to issue shares to family or friends in return for investment in your business, rather than accepting the offer of a loan from them. That way you're not obliged to make repayments. It is important to formalise any agreement with family members or friends as this can help you avoid or resolve any disputes that may arise in future. See financing from friends and family.

Employees

Employee share ownership schemes offer employees a stake in the business, encouraging loyalty and helping you to retain key staff. They also provide an incentive or reward for performance and can help recruitment. See set up employee share schemes.

Issued capital

A company need not issue all its capital at once. Issued capital is the nominal - rather than actual - value of the part of the share capital that has been issued to shareholders.

For example, a company that issues 500 shares at £1 each has an issued share capital of £500.

Public limited companies (plcs) must have at least £50,000 worth of issued share capital before they are allowed to trade. Initially they must satisfy this requirement by means of shares in sterling or in euro shares (and not by a combination of the two).

Once a plc has started to trade, the requirement can be satisfied by means of share capital denominated in multiple currencies (including currencies other than sterling or euros). Every share issued by a plc must be paid up at least as to a quarter of its nominal value - plus the whole of any premium from issuing the shares at a higher price.

Limited companies must notify Companies House of any new shares issued. They can do this by completing form SH01.

A company may have many different types of shares that come with different conditions and rights in relation to profit entitlement, entitlement to capital if the business is wound up and voting rights within the business.

The five main types of shares are:

1. Ordinary shares

These are the most common type of shares and are standard shares with no special rights or restrictions. They have the potential to give the highest financial gains, but also have the highest risk. Ordinary shareholders are entitled to voting rights, however, they are the last to be paid if the company is wound up.

2. Non-voting ordinary shares

These shares carry the same conditions as ordinary shares except with regards to voting rights. Shareholders may have voting rights under certain circumstances or they may have no voting rights at all.

3. Preference shares

Preference shares typically carry a right that gives the holder preferential treatment when annual dividends are distributed to shareholders. Shares in this category receive a fixed dividend, which means that a shareholder would not benefit from an increase in the business' profits. However, usually they have rights to their dividend ahead of ordinary shareholders if the business is in trouble. Preference shares carry no voting rights.

4. Cumulative preference shares

These shares give holders the right that, if a dividend cannot be paid one year, it will be carried forward to successive years. Dividends on cumulative preference shares must be paid, despite the earning levels of the business, provided the company has profits that can be distributed.

5. Redeemable shares

Redeemable shares come with an agreement that the company can buy them back at a future date - this can be at a fixed date or at the choice of the business. A company cannot issue only redeemable shares, so they must ensure that they also issue non-reedeemable shares.

Most companies use ordinary shares, however, it is possible to issue more than one kind of share class as a way to vary shareholder voting, dividend and capital rights.

If you are considering issuing various types of shares in your company, it would be advisable to speak to an accountant. Choose an accountant for your business.

Companies House provide guidance for limited companies, partnerships and other company types.

For information on how you can use these shares as an employee incentive, see set up employee share schemes.

Share dealing is a complex area and specialist advice should be sought from solicitors, accountants and company law agencies.

Transfer and transmission of shares

Shares in a listed company are transferred through brokers using the Stock Exchange Euroclear service. However, in a private or unlimited company, shares are usually transferred by private agreement between the seller and buyer, subject to the company's rules and approval of the directors.

Certain taxes apply when you transfer or sell shares:

• If you are transferring shares yourself using a paper stock transfer form Stamp Duty may be payable when the value is over certain limits.
• Stamp Duty reserve tax is normally payable when you transfer shares through a broker using the Euroclear service.
• Any gains you have made on selling shares may be subject to Capital Gains Tax. GOV.UK provides further guidance on tax when you sell shares.

When a shareholder dies or becomes bankrupt, their shares and the rights associated with them must be given to a personal representative or executor.

Issuing a prospectus

If you want to list your company on the Stock Exchange, or offer unlisted securities to the public, you need to publish a prospectus or listing particulars. Only a public limited company can do this.

The prospectus has three main functions:

• setting out all the information that you must make public under the Listing Rules
• acting as a marketing tool for shares in your company by describing the business and its prospects
• setting out the price of your company's shares and how much capital you hope to raise

The Financial Services Authority must approve the prospectus.

At the end of a calendar year, a company's board decides whether the business has done well enough to pay shareholders a dividend. A dividend is a part of the company's profits that is given to shareholders. In larger companies, it is common for an interim dividend to be paid at the half-year point. The dividend is calculated per share, so the more shares you own, the more money you get. Dividends attract income tax, but not National Insurance charges.

Many company share schemes allow employee shareholders to reinvest dividends in further shares called dividend shares. 

GOV.UK provides more guidance around tax on savings and investments.

When paying dividends, the company must send a dividend voucher to the shareholder by post. This shows the amount of the dividend and the amount of tax credit. The tax credit indicates the amount of tax paid by the company on the shareholder's behalf. Dividends are paid after tax has been deducted at the basic rate. If you pay a higher rate of tax, you may be liable to pay additional tax on your dividend.

Companies can pay dividends electronically if a shareholder agrees to it. Companies no longer need to send a dividend voucher in such cases.

Companies can alter their share capital through a number of routes. You should consult your accountant or legal adviser to find the best route for you.

To notify Companies House of a reduction of capital, you must complete Companies House form SH19 Statement of Capital.

There is a fee to register a reduction in share capital. The fee varies depending on whether or not you want to register the change on the same day that you submit the documentation. The fee should be attached to the SH19 form.

All current fees are given on the relevant forms to be sent to Companies House.

Issuing shares to a new shareholder

A company can issue shares to a new shareholder by authorising the directors to allot shares. The authority can be in the articles or given by an ordinary or elective resolution. Allotment creates a right to be issued with the shares. Companies House form SH01 must be completed and returned within a month of the allotment of new shares.

Companies must notify Companies House of any new shares issued - they can do this by completing form SH01.

Changing the shares

A company can consolidate or subdivide its share capital if authorised to do so by the articles. Consolidation is when the shares are put together and then divided into shares of larger amounts, eg 200 shares of £1 are consolidated to create 100 shares of £2. Subdivision is when shares are divided into smaller amounts.

To consolidate or subdivide shares, a company must pass an ordinary resolution, then send the resolution and a completed form SH02 to Companies House within a month of the change.