Type of Shares
- The numerical amount of shares allocated to an entity represents the percentage of the company this entity owns proportionate to the total amount of shares. For e.g. a 50% stake in a company may be represented as 1 out of 2 shares or 50/100.
- This does not establish the value of your company. 1 million shares does not necessarily equate to a $1 million investment.
- Technically, the total amount (adding up the amount paid per share) should be a reflection of the equity that the shareholder is contributing to the company. The shareholder should arrange to deposit this amount into the company bank account or retain confirmation that the amount has been paid to the company.
- At the time of registration many people are not sure about the the exact figure that they will be investing in the company. Therefore it is common to pay a nominal amount such as $1 per share. This is acceptable.
- If an amount remains ‘unpaid’ then this becomes the ongoing financial liability of the shareholder to the extent that if the company experiences financial difficulty then the shareholder is compelled to contribute the amount that is ‘unpaid’. In simpler terms, the ‘unpaid’ amount is a promise to pay that figure in future.
- There are many share classes, each with different rights and responsibilities. The most common share class is ORDINARY (ORD). This class provides the entity with full meeting and voting rights, dividends and participation in distribution of surplus. To find out which share class best suits your situation please read here:
Number of Shares
- There are no set rules in place to regulate how many shares a company should possess.
- Generally, a sole shareholder, intending to operate the company by him/herself, will allocate 1 share – the equivalent of a 100% interest in the company
- It is difficult to divide 1 share, so if additional shareholders become involved with the company at later stage, an entirely new shareholder’s agreement will need to be drafted by a legal practitioner
- This can be avoided by initially allocating a more divisible total amount of shares. In many cases, 2 more shareholders will agree to a total of 120 shares, as it can be divided by odd and even numbers, for e.g. 2 shareholders = 60 shares each, 3 shareholders = 40 shares each.
N.B. This suggestion is for equitable share division.
This information is of a general nature only and does not constitute professional advice. You must seek professional advice in relation to your particular circumstances before acting.
Updated — Dec 21, 2016