How to Add a Shareholder to the Company

Shareholders are the owners of a company, and they can be individuals or entities holding partial ownership. Holding shares allows them to vote on important company matters and receive dividends, depending on their share type.

A company benefits from adding shareholders in several ways. Shareholders may help a business in many ways, from lending more capital to offering a competitive edge. Furthermore, adding shareholders affects the company’s financial situation and decision-making process.

Having said that, how do you become a shareholder of a company? Well, it involves legal, financial, and procedural steps to follow. This article mainly focuses on covering this topic and how professionals can help in adding shareholders to a company.

Company Shareholders

Anyone who owns shares of stock in a specific company qualifies as a shareholder. To be considered a partial owner of a company’s stock or mutual fund, an individual must possess a minimum of one share. If a company is successful, its shareholders will usually receive dividends.

Shareholders may be elected to positions on the board of directors and have the right to vote on specific issues concerning the company. After paying the creditors in full, shareholders may acquire a part of the proceeds from the sale of the company’s assets during liquidation.

Being a shareholder has benefits in this kind of scenario; unlike other investors, shareholders are not personally responsible for paying off the company’s debts and financial commitments, and creditors cannot force them to pay them back.

How to become a shareholder of a company?

Adding shareholders in a company will involve the following key steps:

Obtain approval from your current shareholders

After forming your company, you can add new shareholders by transferring the existing shareholders’ stock to a new shareholder. In this case, it is important to file a share transfer form. Stamp Duty must be paid to HMRC by the new shareholder.

During the share transfer, current members must agree to forego their pre-emption rights to distribute the new shares. The next step is for the directors (or members, as the articles may specify) to provide their approval and add the transfer to the membership registry.

You should also inform the Companies House about adding shareholders and their necessary details. While not mandatory, you must promptly provide a confirmation statement following share transfers.

Negotiate the terms of the new shareholder’s investment

The next step in adding shareholders after the current members approve is to have a detailed discussion with the new shareholders regarding:

• The type of shares
• Number of shares
• Price per share and
• Any conditions attached

Your company’s valuation and financial performance will have a huge say in this negotiation process. The negotiation phase will also discuss the new shareholders’ rights and responsibilities, such as voting and receiving dividends.

Prepare the necessary legal documents

When adding shareholders, you must create and amend several legal documents. These include the share certificate, which verifies the purchase of new shares, and the shareholder agreement, which details the connection between the shareholders and any resolutions.

You may also be required to complete stock transfer and approval papers to comply with regulations and validate the process of issuing shares.

Complete the share transfer process

After filing the required documents and getting approvals, the final step is to complete the share transfer process. This is when the actual share transfer occurs from the seller to the buyer. After adding shareholders and receiving shares from the existing shareholders, it is necessary to update the company’s register of members. It is also important to ensure compliance with the regulatory requirements.

What Documents are Required to Add a Shareholder to a Company?

While adding shareholders, it is crucial to create and file the following documents:

Stock transfer form

A stock transfer form is proof when paying money to the share transferer. The person transferring and receiving the stock should obtain a copy of the transfer form. The company must maintain a duplicate of the stock transfer form and the new and old transfer forms at its registered office.

The following information is required on a stock transfer form to transfer shares of a company:

• The company’s official name
• Total number of shares transferred
• Identity and mailing address of the present proprietor (transferor)
• The kind and monetary worth of the transferred shares
• Stamp Duty liabilities
• Ownership change details (transferee’s name and contact info)
• Exchanged funds, whether in cash or another non-monetary form; any applicable
• The transferor’s or authorized person’s signature

Form SH01

As a company owner, you must submit a SH01 form to Companies House when adding shareholders. This form notifies Companies House of your amended statement of capital, the number of fresh shares you are issuing, and the date of allotment.

As part of a fundraising round, you can issue new shares to investors or issue shares to your co-founders and team members. Remember not to update the SH01 form to the Companies House when adding shareholders. Alternatively, you could submit this data in your yearly confirmation statement. You can submit it through post or online.

Share certificate

When adding shareholders, the new shareholders will receive the share certificate after selling the shares in the market. It is a receipt for purchasing stocks in a specific company. The share certificate has the details about the date of registration and ownership confirmation.

The share certificate has the following details:

• Company Identification Number (CIN) and Name of the Issuing Firm
• Members’ folio numbers Full legal names of shareholders
• The company’s complete registered address
• The specific quantity of stock
• The exact amount of money invested in the company’s stock
• The total number of shares bought

Consent forms

When adding shareholders to your company, they should sign a consent form with the details of their name, address, and number of shares held. After providing all these details, shareholders must sign the form consenting to the share purchase.

Companies House notification

When adding shareholders or during a share transfer, you must inform Companies House about these changes in your next annual confirmation statement. When a current shareholder wants to leave a company, they must sell their shares to other existing shareholders or outsiders. Directors must monitor the transfer and update the Companies House and the statutory register of members with the new shareholders’ information.

Shareholder agreement

A shareholder agreement usually mentions the relationship between the shareholder and the company’s management. This agreement is essential for all shareholders; sometimes, only certain share classes will keep it. It guarantees collaboration while safeguarding shareholders’ investments.

The shareholder agreement outlines a shareholder’s rights and duties and addresses the company’s and shareholders’ responses to a significant event, such as a shareholder’s demise.

Confirmation statement

You should file a yearly confirmation statement (formerly the Annual Return) with Companies House. This document informs the government agency of any company leadership changes, including new or changed directors, secretary, registered office address, shareholders, share capital, and major control holders.

You must file the confirmation after the company’s incorporation, and after that, you should file it once in 12 months.

Benefits of Becoming a Shareholder of a Company

When a person becomes a shareholder in a company, the following are some of the benefits they receive:

• Receiving dividends – Shareholders can receive dividends from the company’s profits as cash or additional shares of stock. The dividend percentage depends on the rate of shares a person holds in the company. Most companies provide quarterly dividends, which provide a stable income for shareholders. Also, companies providing dividends to their shareholders prove their financial stability.
• Participating in company management – Shareholders holding a certain number of shares in a company can vote at the Annual General Meeting of Shareholders. They can also vote to elect directors during major business decisions such as liquidation or M&A. Even if they cannot physically attend, they can cast their vote online. This gives shareholders a say in the company’s management and strategic decisions.
• Shareholder perks – Shareholders can avail themselves of certain benefits depending on the number of shares they hold. Several businesses provide special deals and discounts to their shareholders as an incentive. Shareholder perks strengthen their relationship with the company.
• Financial security – Investing in shares provides shareholders with financial security, as a diversified portfolio contributes to their financial stability and growth. Holding different types of stocks, such as preference shares and stock options, gives shareholders financial security, allowing them to sell their assets easily.
• Retirement fund – Shareholders can strategically plan and improve their retirement fund. They can benefit from capital appreciation as the company’s stock price increases, potentially giving good returns. As dividends provide a regular income, they can be reinvested or withdrawn from the retirement fund. Also, if the shareholders hold the shares for a long time, the capital gains eventually increase, improving their retirement fund value.

What is the Role of Tax Professionals in Adding New Shareholders to a Company?

Adding shareholders often requires professional support. The following are how experts can support adding shareholders to a company:

Here we explain the importance of tax professionals with the help of an example.

Mini’s Cupcakes wants to change from a sole proprietorship to a corporation to add two new shareholders and get more money. This shift brings up several business needs, tax issues, and legal points that tax experts would handle.

Business Requirements

• Capital Expansion – By becoming a corporation and giving shares to new investors, Mini’s Cupcakes can raise the extra cash it needs to grow.
• Asset Management – The choice to move or keep certain things, like property and recipe files when becoming a corporation will affect future tax and business plans.
• Liability Protection – Mini’s personal assets will be protected as per the applicable limited liability through incorporation.
• Control and Ownership – Mini’s Cupcakes would be able to handle the dynamics of shared ownership while preserving the company’s founding principles.

Role of Tax Professionals In adding new shareholders

Here we added a list of important role of tax professionals for adding new shareholders:

• Tax Compliance and Planning – They will ensure compliance with §351 requirements. §351 allows for the tax-free transfer of assets in exchange for stock. This includes advising on the tax basis for assets including the implications of withholding assets.
• Asset Strategy – Tax professionals can evaluate and advise on the benefits of withholding certain assets, which can lead to tax-efficient profit distributions, avoiding double taxation, and providing flexibility in future asset transfers.
• Liability and Risk Management – They would advise on the implications of transferring assets to the corporation, which will protect Mini’s personal liability and manage potential business risks.
• Ownership and Control – They will assist in structuring shareholder agreements that align with business goals while balancing the control among new stakeholders.
• Financial and Strategic Advice – Professionals will also help navigate the complexities of transitioning to a corporate structure, and ensuring financial strategies support the organization in long-term growth.

In general, tax professionals can help facilitate a seamless transition for Mini’s Cupcakes by supporting business goals, looking into the tax implications, and meeting the demands of new shareholders.

How Eqvista Helps in Your Company’s Share Issuance Process

It is usually complicated to add shareholders to a firm; several legal criteria and paperwork are needed. It calls for several processes, even though it is a crucial stage in expanding your business. To make the work easier and to remain in compliance with all legal and tax obligations, get expert help.

Eqvista provides an all-in-one interface for issuing, tracking, and managing shares. All equity transactions can be easily recorded on Eqvista, and additional tools such as round modeling and waterfall analysis can help you make more informed financial decisions about your next company funding.

Everything is recorded in real-time, and you can add shareholders to view their shareholdings. Check out the app here to start using it today!