Limited Company question

[koster]

I want to find out about a certain company (a limited company) and obtained a credit rating report. This part caught my eye, but I'm new to this so I don't know if it's significant. If I undertand this correctly there are a hundred shares each worth �1. Does this mean the company is only worth �100? Is that normal? Or does it mean the company is just a token gesture, a convenient front?

Shares Ordinary GBP 1.00
Issued Number 100

Principal Shareholder
56 Mr X
44 Mr Y

[Buenchico]

(2-part post 'cos I seem to have rambled on rather a lot!):

You'd probably see exactly the same information for the vast majority of UK limited companies. Very few people who set up limited companies pay lawyers thousands of pounds to draft the legal paperwork involved in setting up a company from scratch. Instead, they buy an 'off-the-shelf' limited company from one of the many firms which sell them. This can cost less than �50. For this they get to own a company which is already registered at Companies House but has never traded. The articles of association will permit the company to trade in almost every possible type of legal activity. Also, the company will normally be recorded as having a share issue of 100 ordinary shares valued at �1 each. For a small extra amount, the trader selling the limited company will arrange for the name of the limited company to be amended prior to it being formally transferred to it's new owner.

(Er. . . I'm not sure that I've explained it very well, so let me try it another way. A trader will register hundreds of 'dormant' limited companies with Companies House. The paperwork is identical throughout, except that the companies might be called My Firm One Ltd, My Firm Two Ltd, My Firm Three Ltd, etc.

I then come along and want to set up a firm called PC Oddballs Ltd. For a small fee, the trader submits the paperwork to Companies House which changes the name of My Firm One Ltd to PC Oddballs Ltd. He then immediately sells PC Oddballs Ltd on to me).

[Buenchico]

As I've indicated, the vast majority of limited companies are formed in this way. They're usually set up by a couple of people (because you need two directors) who agree how they'll allocate the (nominal) 100 shares between them. (Note that at no time does anyone actually pay �1 per share).

In most cases the shares will never be traded but, if they are sold to someone else, they'll be sold at 'market value' and not 'face value'. (Some firm's �1 shares are sold for 1p each. Other firms �1 shares are sold for many thousands of pounds each).

Unfortunately, what all of this boils down to is that the information you've quoted is completely useless to you. The firm could be a run by one person and be on the brink of going bust. Equally, it could be a family run firm (which has rejected the possibility of 'going public'), worth hundreds of millions of pounds. Both firms were probably set up, in the first instance, by the method I've outlined. So both firms will still have a nominal share issue of 100 ordinary �1 shares.

Chris

[koster]

Hello Chris,

Thank you very much for your reply, it helped a lot.

Laurence