I’ve Been Offered Shares in a Limited Company: What % Ownership Should I Ask For?

Being offered shares in a limited company is an exciting opportunity that can give you a stake in its success. But one big question remains: what percentage ownership should you ask for? Whether you’re negotiating as a potential investor, employee, or partner, understanding the different levels of ownership and the rights that come with them is crucial to making the right decision.

At Black and White Accounting, we help individuals and businesses navigate the complexities of company ownership, ensuring that you make informed choices that align with your goals. In this blog, we’ll explore what percentage ownership you should aim for, and what rights and responsibilities come with different ownership stakes.

Understanding Share Ownership: It’s About More Than Just %

When you own shares in a company, your percentage of ownership is crucial, but it’s about more than just numbers. Your voting power, influence, and potential returns all depend on how many shares you hold relative to others. To figure out what percentage you should ask for, you need to consider how much control and decision-making power you want.

Let’s break it down:

1. Minority Shareholder: Less than 50% Ownership

A minority shareholder is someone who owns less than 50% of the company’s shares. This is a common position for investors, employees offered shares, or partners who don’t want (or aren’t offered) a controlling stake.

Rights of Minority Shareholders:

• Voting Rights: You can vote at general meetings, but your influence is limited by the size of your stake. If you own 10% of the shares, for example, you have 10% of the voting power.
• Dividends: If the company declares dividends, you’ll receive a proportionate share based on the percentage of shares you hold.
• Access to Information: As a shareholder, you have the right to access company financial statements and attend general meetings, where you can voice your opinions.
• Protection from Unfair Prejudice: Minority shareholders have legal protections under UK law, ensuring that directors or majority shareholders don’t act unfairly to diminish their rights or value in the company.

Limitations for Minority Shareholders:

• No Control Over Decisions: You won’t have the final say in key decisions like appointing directors, approving dividends, or major company actions (such as mergers or issuing new shares).
• Vulnerability to Majority Decisions: The majority shareholders make the big decisions, and you’ll generally have to go along with their choices, even if you disagree.

2. Significant Influence: 25% or More Ownership

Owning 25% or more of the company’s shares gives you a more significant voice. While you’re still a minority shareholder, this percentage gives you a blocking power on certain key decisions, specifically those requiring a special resolution (which we’ll explain below).

Rights of 25% or More Shareholders:

• Blocking Power on Special Resolutions: In the UK, a special resolution requires 75% of the votes to pass. These resolutions can include major decisions like changing the company’s articles of association, issuing new shares, or approving certain mergers and acquisitions. If you own 25% or more, you can block these resolutions, giving you a significant influence even as a minority shareholder.
• Access to Key Financials: Like other shareholders, you have access to company records and reports. But with a larger stake, directors are more likely to consider your opinions seriously.
• Dividends and Voting Rights: Your dividend entitlement and voting power increase proportionately with your shareholding.

Limitations for 25% Shareholders:

• Still a Minority Voice: While you have blocking power on special resolutions, you’re still not in control of day-to-day decisions or simple resolutions (which require just over 50% approval). You’ll need to align with majority shareholders for significant changes.

3. Majority Shareholder: 50% Ownership or More

Owning 50% or more of the company’s shares makes you a majority shareholder, giving you considerable control over the company’s direction and decisions.

Rights of Majority Shareholders:

• Control Over Ordinary Resolutions: Most decisions in a company, such as appointing directors, approving dividends, and determining business strategy, are made via ordinary resolutions, which require a simple majority (over 50%) to pass. If you hold 50% or more of the shares, you essentially control these decisions.
• Electing and Removing Directors: As a majority shareholder, you can appoint and remove directors. This gives you the ability to shape the leadership team and strategy of the business.
• Influence Over Business Strategy: Your ownership gives you significant influence over the company’s strategy and direction, allowing you to shape its future in line with your vision.
• Dividends and Financial Benefits: You’ll receive a significant share of any dividends paid out, and your financial interest in the company’s success increases.

Responsibilities of Majority Shareholders:

• Acting in the Best Interests of the Company: Even as a majority shareholder, you have a fiduciary responsibility to act in the company’s best interests. Abuse of power, such as sidelining minority shareholders or making decisions for personal gain, could lead to legal disputes.
• Liability Considerations: Although your personal liability is generally limited to the value of your shares, as a majority shareholder, your influence means you could be more closely scrutinised for decisions that negatively impact the company.

4. 75% or More Ownership: Maximum Control

If you own 75% or more of the shares, you essentially control the entire company. This percentage of ownership gives you the power to pass both ordinary and special resolutions, which means you can make significant changes to the company without needing the approval of other shareholders.

Rights of 75% or More Shareholders:

• Pass Special Resolutions: You can pass special resolutions, which are required for major changes like altering the company’s articles of association, approving mergers, issuing new shares, and winding up the company.
• Total Decision-Making Power: With 75% or more ownership, you have the highest level of control over the company’s operations, strategic direction, and legal structure.
• Reap Maximum Financial Benefits: You’ll receive the largest share of any dividends and the greatest return if the company is sold or liquidated.

Responsibilities of 75% or More Shareholders:

• Greater Responsibility: With great power comes great responsibility. Owning 75% or more means that the success or failure of the company is largely on your shoulders, and decisions you make can significantly impact the company’s financial health and reputation.
• Legal and Fiduciary Duties: Like all shareholders, you must act in the company’s best interests, but as the primary decision-maker, you’re under more scrutiny to ensure that your decisions are fair, legal, and in line with the company’s goals.

How Much Should You Ask For?

So, what percentage should you ask for when being offered shares in a limited company? It depends on your goals and how involved you want to be:

• If You Want a Passive Stake: If you’re simply looking for a return on investment and aren’t concerned with day-to-day decision-making, a minority stake (less than 25%) could be sufficient. This gives you a share of the profits without the responsibilities of running the business.
• If You Want Influence: If you want a say in key decisions, aim for 25% or more. This gives you blocking power on major decisions (special resolutions) without needing to take on the responsibilities of full control.
• If You Want Control: If you want to shape the company’s future and have control over its strategy, you’ll need to aim for at least 50% ownership. This makes you the key decision-maker in the business.
• If You Want Maximum Control: For complete control over both ordinary and special resolutions, aim for 75% or more ownership. This level gives you total authority over the company’s direction.

The Bottom Line: Find the Right Balance

Being offered shares in a limited company is an exciting opportunity, but it’s essential to understand the level of influence and responsibility that comes with your ownership percentage. Whether you want to be a passive investor or take control of the company’s future, the right percentage depends on your goals and how involved you want to be. It’s important that each of the shareholders understands the contribution that each of them will make and expectations are managed, in order for them to continue working together.

At Black and White Accounting, we’re here to help you navigate the financial and legal complexities of share ownership, ensuring you make the best decision for yours and the business’s future.

Let’s Talk: Thinking about accepting shares in a company? Contact us today for expert advice on ownership percentages, rights, and responsibilities, so you can make a decision with confidence.