When you register a limited company, one of the first questions you'll face is: who owns what? If you're starting the business alone, it's straightforward, you own 100%.
But if you're starting with co-founders, investors, or partners, you need to decide how ownership is divided. That's where shareholders and share structure come in.
Getting this right from the start prevents confusion, arguments, and legal headaches later. Here's what it all means, how to structure it, and why it matters.
What is a shareholder?
A “shareholder” is someone who owns part of a company by holding shares. Shares represent ownership, and the more shares you hold, the more of the company you own. As a shareholder, you typically have:
- Ownership rights - you own a percentage of the business
- Voting rights - you get a say in major decisions
- Dividend rights - you can receive a share of the profits
What are shares?
Shares are units of ownership in a company. When you register a limited company, you'll issue shares to the people who own it (the shareholders). For example:
- If you issue 100 shares and you own 100 shares, you own 100% of the company.
- If you issue 100 shares and split them 50/50 with a co-founder, you each own 50%.
Shares can have different values (like £1 each), but in most small companies, each share is worth the same.
Why does share structure matter?
Your share structure defines:
✅ Who owns the business – and in what proportions
✅ Who makes decisions – shareholders with voting rights control key choices
✅ How profits are shared – dividends are usually distributed based on shareholding
✅ What happens if someone leaves – clear ownership makes exits smoother
Getting this wrong (or leaving it vague) can lead to:
❌ Disagreements about control and profits
❌ Legal disputes between founders
❌ Difficulty raising investment later
❌ Problems selling or exiting the business
It's worth taking time to get it right before you register.
How to decide on ownership split
If you're starting with others, you'll need to agree on who owns how much. There's no perfect formula, but here are some common approaches:
1. Equal split
All founders get the same percentage. Example: Three co-founders each own 33.3%.
Pros: Simple, fair, shows equality and trust.
Cons: Can cause problems if one person contributes more later. Doesn't account for different roles or time invested.
2. Based on contribution
Ownership reflects what each person brings, time, money, expertise, or resources. Example:
- Founder A invests £20,000: 40%
- Founder B works full-time: 40%
- Founder C works part-time: 20%
Pros: Feels fairer when contributions differ.
Cons: Harder to measure and agree on. What's "worth more," cash or time?
3. Vesting over time
Founders earn their shares gradually, usually over 3 - 4 years. Example: Each founder is allocated 25% shares, but they vest monthly over 4 years. If someone leaves after 1 year, they keep 25% of their shares (6.25% of the company).
Pros: Protects the company if someone leaves early.
Cons: Requires legal agreements and clear timelines.
4. Reserved for future investors
You might hold back shares for future investment rounds. Example: Issue 80% shares to founders now, reserve 20% for investors later.
Pros: Shows you're thinking long-term.
Cons: Dilutes existing owners when new shares are issued.
Types of shares
Not all shares are the same. Here are the most common types:
Ordinary shares
The standard type. Most small companies only issue ordinary shares, they're simple and flexible. They usually come with:
- Voting rights (one vote per share)
- Dividend rights (share in profits)
- Rights to assets if the company is wound up
Preference shares
These give shareholders priority when dividends are paid or if the company is sold. But they often come with limited or no voting rights. Example: An investor puts in £50,000 for preference shares. They get paid dividends first, but don't get a say in how the business is run.
Pros: Useful for raising investment without giving up control.
Cons: More complex, and investors may want additional protections.
Non-voting shares
These carry no voting rights, just ownership and dividend rights. They're rare in small companies but can be useful if you want to share profits without sharing control.
Issuing shares when you register
When you register your company, you'll decide:
1. How many shares to issue
2. What each share is worth (the "nominal value")
3. Who gets them
Example 1: Solo founder
You issue 1 share worth £1.
You own 100% of the company, and your initial share capital is £1.
Simple, clean, done.
Example 2: Two co-founders, equal split
You issue 100 shares worth £1 each.
Each founder gets 50 shares.
Total share capital: £100 (usually paid into the business bank account).
Example 3: Three founders, unequal split
You issue 1,000 shares worth £0.01 each.
- Founder A: 500 shares (50%)
- Founder B: 300 shares (30%)
- Founder C: 200 shares (20%)
Total share capital: £10
What is share capital?
Share capital is the total value of shares issued. For example:
- 100 shares at £1 each = £100 share capital
- 1,000 shares at £0.01 each = £10 share capital
You don't need a large amount, most small companies start with £1 to £100. The share capital is usually paid into the company's bank account, though it doesn't have to be paid immediately.
Can you change share structure later?
Yes, but it's not always simple. If you want to:
- Issue new shares (to bring in investors)
- Transfer shares (if someone leaves)
- Change share classes (add preference shares)
You'll need shareholder approval and sometimes legal advice. It's easier to get it roughly right at the start than to fix it later.
Protecting your ownership
Once you've decided on your share structure, protect it with:
1. A shareholder agreement
This is a private contract between shareholders that sets out:
- Who owns what
- Voting rights
- What happens if someone leaves
- How profits are shared
- Dispute resolution
It's not required by law, but it's highly recommended for any business with multiple owners.
2. Articles of Association
These are your company's official rules, filed with Companies House. Most companies use standard "Model Articles," but you can customise them to include things like:
- Rights for different share classes
- Restrictions on share transfers
- Rules for appointing directors
What about future investors?
If you plan to raise money, investors will likely want:
- New shares (diluting existing owners)
- Preference shares (giving them priority on dividends or exit)
- Protective rights (like veto power on major decisions)
This is normal. Just make sure you understand what you're giving away and negotiate terms fairly.
Common mistakes to avoid
❌ Not discussing ownership early - assumptions lead to arguments later.
❌ Giving equal shares by default - "fair" isn't always equal. Consider contributions.
❌ Forgetting to document it - verbal agreements aren't enough. Put it in writing.
❌ Issuing too many shares - keep it simple. 100 or 1,000 shares is usually fine.
❌ No vesting or exit plan - what happens if someone leaves in 6 months?
In Summary
Your share structure defines who owns your company, who controls it, and how profits are shared. Getting it right means:
- Choosing the right ownership split
- Issuing the right number and type of shares
- Protecting it with a shareholder agreement
If you're starting alone, it's simple, one share, 100% ownership, done. If you're starting with others, take time to discuss it openly, fairly, and honestly.
