Tax Glossary


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Last updated on:
March 17, 2024

A shareholder, whether an individual or an entity, owns part of a company through the possession of shares. These shares represent a portion of the company's equity, entitling the shareholder to a share of the company's profits, often paid out as dividends, and possibly influencing the company's decisions through voting rights, depending on the type of shares held.

Eligibility and Types of Shareholders

  • General Eligibility: Practically anyone or any entity can become a shareholder in a company, either by starting a company and holding its shares, receiving shares as part of an employment package, or purchasing shares on the open market.
  • Private Limited Companies (Ltd): In these companies, shares are not available to the public and are often held by founders, their families, friends, or investors. As a shareholder in a private limited company, you may also take on the role of a director, giving you both ownership and operational control.
  • Public Limited Companies (Plc): Shares of public companies are traded openly on stock exchanges, allowing a wide range of investors to purchase shares. Being a shareholder in a public company generally means you have less influence over company decisions compared to private company shareholders, unless you own a significant percentage of shares.

Tax Implications for Shareholders

  • Capital Gains Tax (CGT): When shares are sold for a profit that exceeds the annual exempt amount (£3,000 for the 2024/25 tax year), CGT is applicable. Losses on shares can be carried forward to offset future gains.
  • Dividend Tax: Dividends received over the Dividend Allowance (£1,000) are subject to dividend tax, which varies based on the taxpayer's income tax band.
  • Tax-free Accounts: Dividends or gains from shares held within an ISA are tax-exempt.

Considerations for Sole Traders and Partnerships

  • Sole traders and partners in a business partnership do not qualify as shareholders since they operate businesses that are legally not distinct from their owners. Thus, the concept of shareholders is exclusive to incorporated entities like limited companies.

Being a shareholder can offer financial rewards and a sense of participation in a company's growth. However, it also involves understanding the responsibilities and tax implications associated with share ownership.

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