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Dividing shares in a business can be one of the most consequential decisions a founder ever makes. Whether you are offering equity to co-founders, employees, or external investors, the way shares are allocated will shape control, risk, rewards, and the future direction of the company.
Shares can be an extremely powerful tool. They help attract investment, reward commitment, and align people with the long-term success of the business. However, they are not something to hand out casually. Share percentages and shareholder rights are complex, and a poorly thought-out structure can result in founders losing influence or control far earlier than expected.
When handled correctly, though, a well-designed share structure benefits everyone involved. In this article, we explore expert insights into how share ownership works, what different percentages really mean, and the key factors every business owner should consider before issuing shares.
If you’re actively considering issuing shares, professional guidance can help you avoid common pitfalls. Our CFO team can advise on ownership, control, and remuneration structures tailored to your business.
Why Shareholder Agreements and Share Structures Matter
At its core, share ownership defines two things: financial reward and decision-making power. A shareholder agreement formalises how those rights are exercised and protects both founders and shareholders from misunderstandings later on.
While giving away shares may feel like giving away part of your business, it can also be the catalyst for growth, stability, and long-term value creation.
The Key Benefits of Offering Shares
Experts agree that shares bring several important advantages when used strategically.
1. Supporting Company Growth
Selling shares allows a company to raise capital without taking on debt. This injection of funds can be used to expand operations, develop new products, hire talent, or enter new markets.
Daniel Frampton, an independent advisor at Acumen Financial, explains that selling shares often provides the springboard businesses need to accelerate growth. In return, shareholders hope that their investment will lead to increased company value and stronger future earnings.
For many businesses, this shared risk-and-reward model is more sustainable than borrowing, particularly in the early stages.
2. Giving Shareholders a Voice
Share ownership is not purely financial. Shareholders have legal rights, including the right to vote on company matters and the right to be treated fairly.
Even minority shareholders have protections under company law. They may raise concerns, propose resolutions, or, in extreme cases, take legal action if they believe the company is being run unfairly.
This balance of power encourages transparency and accountability within the business, particularly when decisions have long-term consequences.
3. Sharing in Profits
One of the most obvious incentives for owning shares is the right to share in the company’s profits. These profits are often distributed as dividends.
Each share within the same class carries equal dividend rights. This means that the more shares an individual holds, the greater their share of any dividend payments.
However, financial reward is directly linked to ownership percentage. As Daniel Frampton points out, the proportion of shares owned determines both the level of remuneration and the level of influence a shareholder has over company decisions.
Risk and Reward Go Hand in Hand
Not all shareholders take on the same level of risk. Those with larger holdings have more personal capital at stake if the business struggles or fails.
This is why majority shareholders are often granted additional rights or benefits. Their greater exposure justifies greater control, but it also means they stand to lose more if things do not go to plan.
What Different Share Percentages Actually Mean
Understanding what different ownership levels represent is essential before issuing or accepting shares.
Oliver Woolley, CEO of Envestors, advises founders to agree on share ownership at the very beginning, particularly when starting a business with partners.
If a company is founded by a single person, they typically own 100% of the ordinary shares. With multiple founders, shares must be divided, often equally, unless there is a clear reason to do otherwise.
Each share usually carries one vote, so ownership directly affects control.
Below are some of the most important shareholding thresholds to understand.
5% to 10% Ownership
A shareholder with more than 5% of shares can propose resolutions within the company. With more than 10%, they can call an extraordinary general meeting.
This power can be used to address serious concerns, resolve disputes, or challenge board decisions.
However, shareholders holding less than 10% can be vulnerable. According to Stephen Newman, Head of Corporate at Ramsdens Solicitors, small shareholders may be forced to sell their shares during a takeover if a general offer is made.
25% Ownership
Holding more than 25% of voting rights gives a shareholder the ability to block special resolutions.
Special resolutions are required for major decisions, such as changing the company’s governing documents. This blocking power can be extremely valuable, even without overall control.
51% Ownership
A shareholder with more than 50% of the votes effectively controls the company. This level of ownership allows them to influence board appointments and guide strategic decisions.
Maintaining this majority is often a priority for founders who want to retain operational control.
75% Ownership
A shareholder with at least 75% of voting rights can pass special resolutions independently.
This includes the power to amend the company’s Articles of Association and instruct directors to act in specific ways. In private companies, this level of control is possible, but it comes with significant responsibility.
Five Critical Factors to Consider Before Issuing Shares
Distributing shares is not just about percentages. Small changes can dramatically alter the balance of power within a business.
Stephen Newman warns founders to be cautious, even with small allocations. For example, if two equal shareholders each give 1% to an employee, that employee could suddenly hold the deciding vote in a dispute.
Here are five key considerations every founder should weigh carefully.
1. Retaining Control
To maintain full control, a founder must hold more than 50% of shares. However, this is usually only possible in private companies.
Most public markets limit individual ownership. For example, stock exchanges often restrict single shareholders to around 30%.
Going public typically means sacrificing absolute control, although founders can still retain significant influence. High-profile companies like Tesla and Amazon demonstrate that relatively modest shareholdings can still carry substantial authority.
2. Blocking Rights
Under standard company rules, shareholders with 25% or more can prevent changes to key company documents.
This means that even minority shareholders can exert significant influence if their ownership crosses this threshold. Founders should be fully aware of who holds these rights and how they may be used.
3. Long-Term Value Versus Ownership Percentage
Founders often face a difficult question: is it better to own a large percentage of a small company, or a smaller percentage of a much larger one?
Growing the overall value of the business may require dilution, but the financial upside can still be far greater in the long run. This decision should be guided by long-term vision rather than short-term control alone.
4. Different Share Classes
Not all shares need to be equal. While ordinary shares typically grant one vote per share, companies can create different share classes with tailored rights.
Some shares may carry dividend rights without voting power. This allows founders to reward investors or employees financially while retaining decision-making authority.
Custom share structures can be highly effective when designed carefully and documented properly.
5. Tax Considerations
Shares and share options are often more tax-efficient than salary or bonuses.
Instead of income tax and national insurance, gains from shares are usually subject to Capital Gains Tax, which is typically charged at lower rates.
This can make equity-based remuneration particularly attractive for both founders and recipients, provided it is structured correctly.
Final Thoughts
When designed thoughtfully, a share structure can align interests, motivate key people, and drive a business forward.
Ownership encourages individuals to think like stakeholders rather than employees, fostering commitment and accountability. However, the legal and financial implications of share allocation are significant, and mistakes can be difficult to reverse.
Founders who understand how shareholder percentages work are far better positioned to create arrangements that support growth without sacrificing their long-term vision.
Need Expert Guidance?
Shares are just one way to reward contribution and investment, but they must be handled with care.
If you want tailored advice on how to structure remuneration and ownership in your business, speaking with an experienced CFO or advisory team can help ensure your decisions support both growth and control, now and in the future.
