How many shares do you need to issue in your newly formed company?

Private limited companies must issue one or more shares when they are incorporated; each member must agree to take at least one share.

There is no restriction to the total quantity that can be issued, unless you modify the Model Articles of Association to limit the amount of ‘authorised share capital’.

To enable registration of your company, the company shareholder has to take up at least one share.

However beyond the legal requirement if you intend to grow and expand your business or bring in a partner at some point in the future, you may wish to issue more than one when you register your company. This will allow you to sell some of them when required. Provided you continue to own over 50% of the business, you will retain overall ownership and control whilst bringing in new members and raising capital.

Issuing a higher quantity is also beneficial for creating the image of a substantial, credible and secure business. By practice, the nominal value of a company’s issued shares tends to represent the liability of its owners if the business is wound up or accrues debts that it cannot pay.

This is an important consideration for creditors, investors, clients and suppliers, all of whom want to feel confident about the viability and security of any business they become involved with.

Disadvantages of issuing too many shares

Whilst it can be advantageous to issue more than one to each initial member, there are also downsides​.

If a company is dissolved or unable to pay its bills, the nominal value of all issued shares must be contributed to the business. The more you issue, the more you and the other members (if any) have to pay in such instances.

For example, if you were to issue a quantity of 1000 or 10,000 the collective liability of the members would be at least Ksh 100,000 or Ksh1,000,000 if your business got into financial difficulty. This is a significant liability, especially for a company owned by only one or two people!

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