You’ve got the killer business idea and the drive to get started. While legal structures might not be what gets you excited in the morning, this crucial decision impacts everything from fundraising to personal liability. Taking time to get it right now saves headaches later.
🚨 Why This Decision Matters
Your business structure affects your ability to raise finance, determines legal ownership, governs dividend payments, and defines your personal liability if the business fails—especially important when co-founders are involved.
Your Business Structure Options
You’ll need to choose between:
- Sole Trader: Register as self-employed
- Partnership: Multiple owners sharing responsibility
- Limited Company: Separate legal entity with shareholders
- Limited Liability Partnership (LLP): Hybrid structure
Want detailed comparisons? Read our e-book “GET READY TO BE YOUR OWN BOSS” for comprehensive analysis of each structure’s pros, cons, and obligations.
Setting Up a Limited Company: Key Decisions
If you choose a limited company (by shares), you’ll need to make these critical decisions:
Understanding Roles: Directors vs. Shareholders
👥 Key Definitions
- Directors: Manage the company day-to-day
- Shareholders: Own the company (also called ‘members’)
Note: You can be both a director and shareholder.
Types of Shares Explained
- Ordinary Shares: Full rights to dividends, voting, and capital
- Preference Shares: Fixed dividends, no voting rights
- Alphabet Shares (A, B, C): Complex structure for different dividend rates (advanced use cases)
How Many Shares Should You Issue?
Contrary to popular belief, there’s no one-size-fits-all recipe for small companies.
💡 Common Share Issuance Strategies
- Solo Founder: Issue 1 share to yourself
- Reflecting Investment: Issue shares dollar-for-dollar (requires actual payment)
- Most Common: Issue 100 shares for easy percentage calculations
Important: Shareholders must physically pay for their shares, so large numbers can be costly.
How to Issue Shares: 7-Step Process
- Check authorized share capital – ensure your company has enough shares in its “pot”
- Verify director authority – check Articles of Association or shareholder resolution
- Review restrictions – check for pre-emption rights in company documents
- Offer shares – formally offer to intended recipients
- Hold meeting/approve resolution – document the share issuance
- Complete share certificates – within 2 months of allotment
- Update company registers – Register of Allotments and Shareholders
Finding Share Capital Information
Initial share allocation is stated in your company’s formation documents. For current ownership:
📊 Where to Look
Check the latest Annual Return for a complete, up-to-date list of members and their shareholdings.
When to Seek Professional Help
If you’re unsure about share structure or issuance, consult an accountant or legal professional. Getting it wrong can create unnecessary complexity and legal issues down the line.
“A wealthy person is simply someone who has learned how to make money when they’re not working.” – Robert Kiyosaki
Want to dive deeper? Download our free e-book “GET READY TO BE YOUR OWN BOSS” for comprehensive guidance on business structures and legal requirements.
