Shares, also known as stocks or equities, represent a unit of ownership in a company. They are a way for individuals or organisations to invest in a business and share its profits or losses. Shares can be bought and sold on stock exchanges or through private transactions. The ownership of shares can provide certain rights and privileges, such as the ability to vote at shareholder meetings and receive dividends. But who is eligible to own shares, and what should be considered when purchasing them? This blog post will delve into the world of shares and everything you need to know about them.
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Limited companies are legally distinct from their owners but still need someone to own them. These owners are known as shareholders, as they hold a stake in the business. Often, small companies are initially owned by one or two shareholders who also act as directors. While directors and shareholders have different roles, individuals can be both simultaneously.
Generally, anyone can own shares both personally and as a business. Shares can be bought and sold through private transactions conducted directly between the buyer and seller without using a stock exchange. You can also buy a share of a business without needing it to be a publicly listed company.
There are four main types of shares that a company can issue, and each has its own set of rules and advantages/disadvantages for the business and the shareholder. To make things even more complex, you will also get two additional types of shareholders, sometimes referred to as A and B, where there are differences in the shareholder’s rights, such as voting rights etc.
Ordinary Shares: These are the most common, usually giving the shareholder some control over the company and a cut of the profits according to how many shares they own.
Preference Shares: They essentially entitle the shareholder to preferential treatment, and they’ll get paid before other share types.
Cumulative preference shares: Cumulative preference shareholders have the right to receive a dividend the following year if there’s no profit in the current year.
Redeemable shares: The company can repurchase these later, either at a fixed point or when the company chooses.
Individuals who receive dividends from the ownership of shares may be required to pay dividend tax. This is a separate tax from income tax, and the rate you pay depends on your income tax bracket. However, a dividend allowance allows the first £2,000 of dividends you receive to be tax-free. It is important to note that the tax treatment of dividends may vary depending on the specific circumstances. It is advisable to consult with an accountant for guidance on your situation.
You will also be liable for capital gains tax if you sell your shares for a profit; thankfully, an allowance can be applied when doing so.
How Can RJF Accounting Help?
The team here at RJF Accounting are the experts in helping you make sound financial decisions for your business. So if you plan to buy or sell parts of your business to shareholders, speak to us today!
We can assist with much more too! Everything from investor relations to tax advice and everything in between! We have helped launch startups, create new business opportunities and even helped businesses save thousands of pounds by assisting them to spot cost savings.
If you plan to scale your business or are looking for growth opportunities, why not speak to the team today? You can call the team on 0161 5040629 or email us at hello@rjf.uk.com to see if we can help you get your plans off the ground! We are open Monday to Friday, 9 am – 5 pm!