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Expert answer: Is there huge costs involved in issuing company shares?

Reader’s question:  I have a limited company, formed in 2004 and believe we only have two ordinary shares of £1 allotted. I thought it was 100 but we cannot locate our articles of association. Assuming our accounts say 2 ordinary shares of £1 each presumably that is the case?

Is there huge costs involved in issuing company shares?

We have an interested investor who is willing to put some money in the company but would want to thereafter own 20% with the value of the company being estimated at £1.5 million.

If the company only has two allotted shares, does this mean we need to increase the number of shares to 100 for example?

If so, will there be any huge costs involved in issuing shares to him by us and/or him such as stamp duty and capital gains tax?

Expert’s answer: The expert for this reader’s question is Sophie Tyler from Dolan Accountancy.

Legal requirement

It is a legal requirement for UK companies to have both the memorandum and articles of association. I would advise as a first step you would need to check with Companies House if they have this information on record so you can obtain copies.

Usually the accounts would show the correct share capital, so the total amount of capital paid to the company for the shares. I would advise checking for the articles of association before presuming the accounts show the correct share capital – just in case!

Seek legal advice

Due to the lengthy process of giving away shares in the business, I would advise you seek legal advice to ensure the right processes are followed, the correct paperwork completed, and to ensure any easily-forgotten parts of the process are completed by the experts.

Generally speaking – there are several points to consider.

If you need to allot new shares in the company, you would need to use the SH01 form and submit this to Companies House within one month of the allotment.

You will need to consider share types/classes – if the investor has the same share class as you, every time you paid yourself a dividend, the investor could also be paid a dividend. Again, seeking legal advice on this would be the best course of action as there are different ways of structuring shares. One big consideration is that the investor would be entitled to their dividends regardless of the work you have put into the company, so you definitely need to be aware of the implications of this.

A shareholder’s agreement is a document which can be drawn up, usually by a commercial lawyer, where it will be made very clear to each party how the share issue works and the expectations of each party.

Capital Gains Tax is paid when an individual sells their shares. With regards to Stamp Duty Tax, you would usually pay Stamp Duty if the transaction is over £1000. It’s usually a tax or duty of 0.5% on the transaction.  You do not have to pay tax if you subscribe to a new issue of shares in a company.

If you do not wish to engage a specialist to assist with the Stamp Duty, HMRC have an enquiries inbox you can email: stampdutymailbox@hmrc.gov.uk.

More on limited company shares and limited company taxes.

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