Every company needs to initially make an amount of shares available to the current and future shareholders. This is done during the company registration process and reflects on the initial company memorandum of incorporation.
Once a company is registered these shares can then be issued to shareholders and they then become issued shares.
It's a relatively difficult process to authorise additional shares once a company is created.
For this reason we suggest authorising a relatively high amount to start with (10 000). Then when you first issue shares you can do so with only a part of the authorised shares.
For example lets say there are 2 shareholders in the business, shareholder A and shareholder B:
- When creating the business, 10 000 shares are authorised. This would be considered the share capital.
- The shareholders decide to split the ownership 50/50
- The shareholders can then issue a total of 1000 shares, 500 to each shareholder
- At this stage only 1000 shares have been issued out of the 10 000
- Even though only 1000 shares have been issued, each shareholder still owns 50% of the company (500 each)
The beneficial thing about the above example is that if an additional shareholder joins the business, they can simply issue more shares, without needing to create more.