Today here at D&K Accounting shareholding is explained. We look at exactly what is meant by the term and how it applies, or if it applies, to your business and the important role it plays within the business. So to start, if you’re a sole trader or if you’re in a partnership, this won’t apply to you. You only start to have shares in business once you transition into a Limited company. The reason for this is that the business itself then becomes its entity and it’s the shares in that entity that are on offer.
So what are shares? Shares are parts of a business that can be bought and owned. Take for example a company worth £200,000, if there are 100 shares, each share would be bought for £2,000 each. So let’s say you bought up £20,000 worth of shares. You would then have a 10% shareholding in that company. And fingers crossed over the next 2 years the value of the company doubles to £400,000, you would then have the opportunity to sell your 10% for £40,000, giving you a nice profit of £20,000.
The incentive behind buying shares is purely from an investment perspective, wanting to not only see a return on your investment but also a profit. Typically when buying shares in a business as opposed to buying stocks, shareholders will wait for a longer period to cash in their shares. The incentive for businesses to give away shares is for investment capital which can be used as working capital for either the day-to-day running of the business or the scaling up of the business.
Hopefully, shareholding is starting to make sense now. Something to clear up is that a shareholder is not like a director. Shareholders appoint the director themselves to oversee the day to day running of the company so that they can rest assured that their investment is safe and that the company is moving in the right direction. A shareholder however can also be a director. This is more commonly seen in start-ups and early-stage small businesses.
If you want to know any more about shareholding and how shares can be implemented in your company, or should you find yourself wanting to start selling shares for investment in your company feel free to get in touch with a member of our team and we will be more than happy to explain the options you’ve got and which of these options might be best for you.