The problem: insufficient shares in circulation
Before undertaking a funding round, it is worth checking that you have sufficient shares in circulation to allow the maths to work out correctly for the particulars of your round. For example, if you and your founders have 100 shares between you and your PMV is £1m, then every additional share you offer costs £10,000. What if someone wants to invest £25,000? Well that's not possible - you can only sell then 2 or 3 shares, so they can invest either £20,000 or £30,000.
Many founders incorporate their start-up with far too few shares - 1, 100, or 1000 are common. You may therefore wish / need to consider sub-dividing shares before taking on investment - this can be done swiftly online at Companies House, after the company’s shareholders have passed a standard resolution, all as detailed below. Subdivision (or 'share-splits') splits each share in your company into a larger number of shares (see below), which will allow you to achieve more granular investment amounts.
Even once you’ve done a share split, the exact value per share is a function of the pre-money valuation and number of shares in circulation, so don't be too surprised if someone wants to invest £20,000 and, due to the maths, they actually need to invest £19,996 or whatever, in order to allocate just a whole number of shares. This may look somewhat untidy, but has no practical impact.
TLDR; How many shares should I split to?
Most customers find 100,000 shares to be optimal, but if you have 10,000 shares or a million, that's fine too.
Altering the nominal value
Don't forget, if you subdivide your shares you must also alter their nominal value by the same ratio. If you specified a nominal value of £1.00 on incorporation and then sub-divide 1,000 shares into 100,000 then your nominal value will change to £0.01 – in this example, the number of shares has been multiplied by 100 and the nominal value divided by 100. This ensures that the aggregate nominal valuation remains static.
And don't worry, nominal values routinely have lots of decimal places - values like £0.00001 are acceptable and common.
Subdividing shares – passing a shareholder resolution and completing the SH02 form
To subdivide shares, we need to:
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Pass an “ordinary” shareholder resolution affecting the sub-division, that needs to be signed by the holders of at least 50% of the company’s issued shares (we've got a free template resolution that you can use); and
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Fill in the SH02 form.
The following sections of the SH02 form need to be completed:
Section 1
Enter the company’s registered number and its full name (as registered at Companies House).
Section 2
Enter the date on which you wish to implement the share split.
Section 3
Leave blank, you aren’t consolidating shares.
Section 4
You do need to complete this section, showing each class of share that you wish to subdivide (many people choose to subdivide every share class, otherwise you can confusingly end up with different nominal values for different shares!).
By each share class enter the number of issued shares and nominal value before the split. Then enter the number of issued shares and nominal value post-split.
So, as an example: If you have 1 share in circulation at a nominal value of £1 and wish to do a 1:1,000 share split, then the new share structure would result in 1,000 shares at a nominal value of £0.001.
Section 5 & 6
Leave blank – you aren’t redeeming or reconverting either.
Section 7
You need to state the details of all issued shares following the share split, including all share classes (if you have more than one).
Most companies just need to complete Currency Table A, as all of their shares will have a nominal value in Pounds Sterling (rather than USD, euro, etc). You should therefore enter:
- Currency: Pounds Sterling
- Class of shares: you should refer to all share classes, even if some of them have not been sub-divided.
- Number of shares: this should equal the number of shares of each class in issue, following the share split.
- Aggregate nominal value: this is the number of shares in each share class (your previous answer) multiplied by the nominal value of that class, reflecting any sub-division that has taken place. *Total aggregate amount unpaid, if any: this won’t be relevant to most companies, but if any of the issued shares haven’t been paid for yet then you need to state the aggregate value of unpaid shares here. If all shares have been fully paid for, just put “0”.
Complete one line per share class (Ordinary, Ordinary A etc).
Finally, complete the totals by adding up the number of shares and aggregate nominal values.
If you have any unpaid share capital then this should be entered into the final Totals box.
Section 8
This requires to you to set out, for each class of share, the basic rights attached to it in relation to (i) voting, (ii) dividends/distributions and (iii) capital (ie. exit and liquidation). If any of the shares are “redeemable”, the basic details should also be set out here.
These details do not need to be extensive – they should present a clear, basic explanation of the rights attaching to each share.
As an example set of prescribed particulars, you might use the following for ordinary shares that benefit from the usual set of full rights: The shares have attached to them full voting, dividend and capital distribution (including on winding up) rights. They do not confer any redemption rights.
If there are more than three share classes and you are completing the paper based forms, use a continuation sheet for the others.
Section 9
If you are completing the paper based forms, once all of the previous 5 sections have been completed and checked, a director, company secretary or other person expressly authorised by the company should sign in the box provided.
If you are completing online, then you can confirm you authorise the issue of shares through the platform without signing.
Back page:
You should provide contact details in the event Companies House needs to speak to you about the form - it can avoid unnecessary pain if something needs to be corrected. Otherwise, this section provides details of where to send the completed and signed form and a helpful checklist.
Filing the SH02
The following page can be used to file the completed SH02 online
The shareholder resolution does not need to be filed at Companies House – just keep a signed/dated copy for your records.
If you require help or clarification on any of the above, please feel free to contact the team at info@foundercatalyst.com
At FounderCatalyst, we help founders make their UK startups investor-ready, close funding rounds, and motivate their teams. We handle SEIS and EIS advance assurance, fundraising legal paperwork, data rooms, cap table management, and set up EMI and unapproved share option schemes. Book a call with an expert to learn more.
