Who can own shares and what are they?

By December 16, 2022 January 4th, 2023 Insights
Methods of Determining Value

Who Can Own Shares and What Are They?

Limited companies and their owners are not linked from a legal aspect as they are considered to be separate legal entities, however, they do still require an owner. While someone will be considered an owner, they are, in actual fact, a shareholder as they are in possession of a share of the business.

Initially, many companies will start with just a couple of shareholders who are also known as the company directors. Shareholders and directors have different roles although it is possible to be a shareholder and a director at the same time but what are the reasons for being a shareholder?

To begin, let’s take a look at shares.

Shares – What Are They?

In its simplest form, a share in a company means that an individual will hold a share of the ownership. However, why would you hold shares?

There are several different types of shares but when you do hold shares, it could mean that you have control over a company or are paid dividends.

Dividend payments come from the profits of the company and so, if the company is performing well, then this is a great way of earning an additional income. It is also possible to sell shares and make money too.

What Are The Different Types of Shares?

There are several different types of shares and these are:

Ordinary Shares – This is the most common type of share and this will give the shareholder some element of control of the company as well as a percentage of the profits based on the number of shares they hold.

Preference Shares – The shareholder will be entitled to preferential treatment which means that they will receive their payment ahead of other types of shares.

Cumulative Preference Shares – This type of share will give shareholders the ability to be given a dividend the year should there be no profit during the current year.

Redeemable Shares – This will give the company the opportunity to purchase them back, either when the company decides to or at fixed point.

What About Shares and Tax?

The reality is that there is no getting away from tax and so, any income you receive from dividends will be susceptible to tax. So, regardless of whether you receive dividends or you sell shares, you will have to pay tax.

Dividend Tax and Shares

For those who receive dividend payments, they will be required to pay dividend tax.This is not the same rate that is applied to income tax and the amount of tax you pay will be dependent on your income. For those who pay the basic rate, they will have to pay 8.75% and for those who are at the higher rate, they will have to pay 33.75%. There is also an additional rate of 39.35%.

A company can issue an unlimited number of dividends but this is providing that there is enough money in the business for it to operate.

For those who decide to sell shares for a higher rate than what they paid, then this might be considered a gain and the size of the gain will determine whether you have to pay Capital Gains Tax.

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