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If you’re running a company, one of the most important things you’ll want to understand is how shares work.
For some companies, shares will be allocated evenly among owners, while others will divide them unequally so that certain owners hold a larger percentage of the company than others.
A common question that arises is, “How many shares can a company have?”
In this article, we’ll provide you with an up-to-date answer for 2025. But first, let’s consider how shares actually work and what they mean for your company’s ownership structure.
How Do Shares Work In A Private Company?
When a company is set up, its capital is divided into shares. Each share represents a unit of ownership in the company and is a claim on part of its assets and profits. Shares can be owned by individuals or legal entities (such as another company or a trust), and it is also possible for individuals to jointly own shares.
There are two primary ways in which a person or entity acquires shares.
Firstly, shares may be acquired through a share issue. This occurs when a company creates new shares and allocates them to an individual or entity. Share issues typically occur at the time of incorporation and may also take place later on to raise additional capital – a process that can be clearly defined in your company’s constitution or a Share Issue Agreement.
Secondly, shares can be acquired through a share sale, where an existing shareholder sells their shares to a third party. In such cases, it is prudent to have a Share Sale Agreement in place to record the details of the transaction in writing. For guidance on the contractual aspects, you might find our article on what is a contract helpful.
When you own shares in a company, you acquire certain rights. These typically include the right to receive a proportional share of the company’s profits or proceeds from a sale or acquisition, the right to vote on key decisions, and the right to participate in future share issues. The exact rights will depend on your company’s Constitution and any Shareholders Agreement that may be in place – documents you can get more detailed insights about in our guide to Shareholders Agreements and Company Constitutions.
How Many Shares Can A Company Have?
The precise number of shares a company initially sets out is determined at incorporation; however, this number may be amended over time. What really matters is the percentage of ownership each shareholder holds, rather than the absolute number of shares. Each company must determine a share structure that suits its needs. It is common for small businesses to start with a nominal number of shares – for example, 12 shares – as this facilitates easy division among owners. Alternatively, startups aiming to raise investment may choose to issue many more shares (e.g. 1 million or even 10 million) to provide finer control over ownership percentages.
If later on a company needs to facilitate finer share division or distribute shares among an increased number of shareholders, it can undertake a share split. For instance, a 10× share split will multiply the number of shares each existing shareholder holds (turning 10 shares into 100, for example), without affecting their percentage of overall ownership.
While there is no statutory limit on the number of shares a company can have under New Zealand law, it is important to note that there is a limit on the number of shareholders for a private company – typically, a private company should have no more than 50 shareholders. This regulation helps maintain the company’s private status and ensures simpler management and decision-making processes.
How To Issue Shares
The process your company follows to issue shares will depend on your governing documents, such as your Company Constitution and any Shareholders Agreement, as well as the requirements set out in the Companies Act 1993. Your Constitution might detail a specific process for issuing shares, but in the absence of such provisions, the default rules in the Companies Act will apply. For additional guidance on this topic, do check out our detailed article on the process for issuing shares.
Can Directors Also Be Shareholders?
We’ve discussed the allocation and issuance of shares and the numbers involved – but can directors also be shareholders? The simple answer is yes. Directors are allowed to hold shares, provided that any potential conflicts of interest are managed appropriately and this is clearly documented in the company’s governing documents. For further clarity, you might refer to our comprehensive guide on director and shareholder responsibilities.
Do I Need A Shareholders Agreement?
If your company has more than one shareholder, it is strongly recommended to have a Shareholders Agreement in place. This essential document codifies the rights and responsibilities of each shareholder, addresses matters relating to share transfers, and establishes procedures for resolving disputes. A robust Shareholders Agreement can prevent misunderstandings and ensure the smooth operation of your company – a point we’ve explored further in our article on Shareholders Agreements and Company Constitutions.
Key Takeaways
In summary, there is no fixed limit to the number of shares a company can have. The critical factor is how the shares are divided among shareholders, as this determines control, profit distribution, and voting power. When planning your share structure, consider your company’s growth plans and the number of shareholders you anticipate in the future.
When issuing shares, always refer to your governing documents and the Companies Act 1993 to ensure you follow the correct procedures. For those looking to raise capital in 2025, understanding these issues is more critical than ever, and our resources – including articles on raising capital and protecting your intellectual property – can help you make informed decisions.
It is also worth considering how your share structure may evolve as your business grows. Future-proof your ownership framework with a well-drafted Shareholders Agreement, and review it periodically with professional advice to ensure it reflects your company’s current needs and goals.
If you would like a consultation on managing shares in your company, feel free to chat with our Corporate Lawyers to discuss your options. Alternatively, you can reach us at 0800 002 184 or [email protected] for a free, no-obligations chat.
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