Limited company guide
How to set up share capital at incorporation: ordinary versus alphabet shares, founder splits, vesting, nominal values, and the traps that make a later investment round painful.
Short answer
Most UK startups should incorporate with a single class of ordinary shares at a low nominal value, split between founders in proportions that reflect long-term contribution, with vesting agreed in writing. Alphabet shares suit owner-managed companies wanting flexible dividends, but they complicate investment rounds and can attract settlements legislation scrutiny where shares go to a spouse.
Written and reviewed by Waqas Sagar Member of ICAEW, Fellow of ACCA, Fellow of AAT, a double graduate and entrepreneur at heart, helping startups grow and serving thousands of businesses nationwide with an excellent team. Published by LimitedCompany.Accountants, 12 London Road, Morden, London SM4 5BQ. Reviewed 12 September 2026 against 2026/27 UK rates and current Companies House and HMRC guidance.
Regulated by
Regulated & AML supervisor
AAT fellow member
Xero Gold PartnerCertified advisor
QuickBooks PartnerCertified ProAdvisor100+ yearsCombined team experienceFully insuredUp to £2m indemnityMost UK startups should incorporate with a single class of ordinary shares at a low nominal value, split between founders in proportions that reflect long-term contribution, with vesting agreed in writing. Alphabet shares suit owner-managed companies wanting flexible dividends, but they complicate investment rounds and can attract settlements legislation scrutiny where shares go to a spouse.
Start with ordinary shares
When alphabet shares make sense
Founder splits and vesting
Leave room for options and investors
Before you act
One class of ordinary shares with equal rights to vote, dividends and capital keeps the cap table legible. Nominal value of £0.0001 or £0.01 per share gives room to allocate meaningful numbers without creating a large unpaid capital obligation.
Issue enough shares at the outset. Splitting 100 shares three ways is awkward; 1,000,000 shares makes percentages, option pools and later rounds arithmetic rather than a subdivision exercise.
Alphabet shares — A ordinary, B ordinary and so on, with identical rights except that dividends can be declared per class — let an owner-managed company pay different dividends to different shareholders in the same year.
They work well for two working directors with different income profiles. They work badly where a non-working spouse holds a class purely to soak up basic rate band, which is where HMRC's settlements legislation becomes relevant, and where the share is a full ordinary share the spousal exemption usually applies. Take advice on the facts rather than copying a structure.
Institutional investors dislike alphabet structures and will usually require a consolidation into one class before investing.
An even split is fine if the contribution is even. What is not fine is having no vesting: a co-founder leaving in month four with 50% of the equity is the single most common cause of a failed first raise.
Standard reverse vesting over four years with a one-year cliff, documented in the shareholders' agreement, protects everyone including the founder who stays. Discuss it while everybody is still enthusiastic.
If you plan to grant EMI options, agree the size of the pool early — typically 10% to 15% — and remember it dilutes founders, not investors, in most term sheets.
If you may raise under SEIS or EIS, investors must receive full-risk ordinary shares with no preferential rights to dividends or assets, so a preference structure agreed at formation can disqualify the round.
Rates, thresholds and deadlines quoted here reflect the 2026/27 UK tax year. Check current GOV.UK guidance, or ask us, before relying on them for your own company.
Local help
We work with company directors across London and Surrey from our office at 12 London Road, Morden, London SM4 5BQ. Pick your area, or send the form below and we will call you back.
Frequently asked
Enough that percentages are easy: 1,000 to 1,000,000 shares at a low nominal value is typical. Avoid 1 share per founder.
Yes. The risk is not legality but HMRC challenge where a share class exists mainly to divert income, and investor resistance at a funding round.
Yes, through new classes, subdivisions or a reorganisation, but it takes resolutions, filings and sometimes tax advice. Getting it roughly right at formation is cheaper.
Yes. SEIS and EIS shares must be full-risk ordinary shares with no preferential rights to dividends or to assets on a winding up.
Keep bank statements, sales and platform reports, purchase invoices, payroll records, VAT workings, finance agreements and Companies House correspondence. We confirm the exact list at onboarding and identify gaps before a filing deadline becomes urgent.
The fee depends on transaction volume, record quality, VAT and payroll requirements, historic catch-up and the level of reporting needed. We agree a fixed scope and price before technical work starts, with published packages available on our fees page.
Yes. We request professional clearance, collect the prior records and authorities, check the next Companies House and HMRC deadlines, and give you one clear handover list. The process is normally completed remotely.
Yes. We work through secure cloud records, scheduled reviews and digital approvals, while keeping a named team available by phone, video call and email. Clients can also visit our Morden office by appointment.
We regularly work with Xero, QuickBooks, FreeAgent, Sage and connected sales or expense apps. The right setup depends on transaction volume, integrations and the reports you need, not simply the software brand.
The relevant calendar may include annual accounts, Corporation Tax payment and return dates, confirmation statements, VAT returns, payroll submissions and Self Assessment. We map the dates from your company year end and registrations.
Included approach
Check the current rules
Deadlines, thresholds and filing rules change. GOV.UK and Companies House publish the current statutory position; advice should then be applied to your company’s circumstances.
Talk to an accountant
Share your next deadline, accounting problem or growth question. We will reply with a clear next step and quote any technical work before it begins.
Chat with ACCOTAX on WhatsAppPick a time that suits you and a qualified accountant will call you about your company, deadlines and fees.
Appointments run Monday to Friday, 9:00am to 5:30pm. Your confirmation is emailed straight away.
Four London offices
Work with us entirely online, or sit down with your accountant at whichever office suits you. Open Monday to Friday, 9:00am to 5:30pm. Office visits are by appointment only, so please book before coming in.
Free, no obligation
Pick a time that suits you and a qualified accountant will call you about your company, deadlines and fees.
Appointments run monday to friday, 9:00am to 5:30pm. Your confirmation is emailed straight away.
