Issuing shares: calculations and process

Issuing shares: calculations and process

New shares calculations

Typically, issuing shares should be done in the context of investments, and share options.

The big question is: how do you calculate the number of new shares that need to be issued? Here's the answer.

If you have 1,000 shares and you want to issue 5% to your technical co-founder, then you need to issue them 53 shares (rounded up from 52.63), not 50 shares. Does it make sense right? Because 50 is 5% of 1,000. 

The reality is that if you issue 50 shares, then your total number of shares is 1,050, not 1,000. So, 50 shares is not 5% of 1,050! You need to scale up the number of shares issued to make sure they hold the agreed percentage after the new shares are issued. Use this formula to do this (using figures from the above example):

1,000 / 0.95 = 1,052.63 = 100% of shares after the new issue.

1,052.63 / 100 = 10.53 = 1% of shares after the new issue.

10.53 x 5 = 52.6 rounded to 53 shares = 5%  of 1,052.63 shares.

Please note that:

It is important to remember that issuing new shares is different to transferring existing shares, especially from a tax perspective. Transferring shares (rather than issues of new shares) incur stamp duty if the value of the transfer is over £1,000. Issuing new shares does not incur stamp duty. 

The process of issuing new shares

The process to issue shares (bearing in mind any other investment or share option processes going on in the background) is as follows:

  1. Determine the number of shares to be issued (avoiding a key pitfall)

  2. Deal with any pre-emption rights in place (which would only exist if you entered into a shareholders’ agreement of some kind – e.g. with existing investors)

    If so, you may need to agree with your existing investors/shareholders to waive their pre-emption rights, or go through a pre-emption process before issuing the shares.

    You can do this by having them sign a shareholders’ written resolution to waive their pre-emption rights. 

  3. Issue the Shares using an SH01 form

    Once the shares are ready to be issued – for example if share options are being exercised, or if your investment agreement has been signed – you physically create the shares by submitting a completed SH01 form to Companies House.

    You can see our SH01 form guidance here.

  4. Issue Share Certificates to new shareholders

    Once the shares are issued, you can create share certificates using our simple but effective share certificate template!

  5. Record the new shareholders in your shareholder register

    You should also record the share issue in your shareholder register – you can download our shareholder register template here.

This article was written by Legal Sidekick. Legal Sidekick is the legal platform for startups. We offer automated contracts and loads of startup legal resources and guides. For ‘how to issue shares’ queries, contact us.