- Equity in a UK company means ownership, held as shares.
- Issuing shares dilutes your percentage but can raise the value of what's left.
- How you issue shares affects tax and whether investors get SEIS or EIS relief.
Equity in a UK company means ownership, and you’ll usually hold it as shares in a Ltd company. Your equity is the slice of the company’s issued shares you own, which sets your share of dividends and, depending on the share class, your voting rights.
Issuing new shares dilutes everyone’s existing percentage. How you issue them affects both your tax position and whether an investor can claim SEIS or EIS relief, so it’s worth understanding before you sign anything.
What do people actually mean by equity?
“Equity” gets used for several different things, which is half the reason it’s confusing. Sorting out which one you mean saves a lot of crossed wires later.
There are three meanings you’ll run into:
- Equity in a company: ownership of the business, held as shares. That’s the meaning this guide covers.
- Shareholder equity on the balance sheet: an accounting figure of assets minus liabilities, showing what the business is worth to its owners on paper.
- Equity release: a way of borrowing against the value of your home. Nothing to do with company ownership.
This page is about the first one: equity as ownership. If you’re after the accounting figure, the shareholder-equity line on your balance sheet is a separate calculation, and home equity release is a personal-finance product we don’t cover here.
What does a share actually give someone?
A share is a unit of ownership. Give someone shares and you’ve given them a permanent stake in the company, recorded in the statutory register of members, not a one-off payment or a favour you can quietly take back.
Owning shares typically carries three things: a proportion of any dividends the company pays, a vote on company decisions, and a claim on what’s left if the company is ever wound up. The exact mix depends on the class of share, which we’ll come to.
The register of members is the legal record of who owns what. It’s worth keeping it accurate from day one, because it’s the document people rely on when they want to check who really controls the business.
What happens to your percentage when you bring someone in?
Say you start as the sole shareholder with 100 ordinary shares. You own 100% of the company, and every dividend and every vote is yours.
Bring in a co-founder and issue them 100 new shares, and there are now 200 shares in issue. You still hold your original 100, but that’s now 50% of the company rather than 100%. You haven’t lost any shares; the pie just got bigger.
Now take an investor round. Issue 50 more shares to an investor and there are 250 in total. Your 100 shares are now 40%, your co-founder’s 100 are 40%, and the investor holds 20%. Each round changes the percentages without touching the number of shares anyone already holds.
| Stage | Shares in issue | You | Co-founder | Investor |
|---|---|---|---|---|
| Sole shareholder | 100 | 100% | – | – |
| Co-founder joins | 200 | 50% | 50% | – |
| Investor round | 250 | 40% | 40% | 20% |
Why can a smaller slice be worth more?
This is the part that trips people up. Dilution reduces your percentage, but it doesn’t automatically reduce the value of your holding.
If an investor pays £250,000 for that 20% stake, they’re valuing the whole company at £1.25 million. Your 40% is now worth £500,000 on that basis, even though you used to own 100% of a company worth far less. A smaller share of a bigger, better-funded company can be worth considerably more than a larger share of a small one.
The trap is treating percentage as the only number that matters. Percentage governs control and dividend split; value depends on what the company is worth. Founders who fixate on holding onto every percentage point sometimes turn down the funding that would have made their remaining stake worth having.
What do share classes change?
Not every share is the same. A company can create different classes, and each one can carry a different mix of dividend, voting and capital rights.
- Ordinary shares: the standard class. One vote each, dividends in proportion to holding, and a proportional claim on capital if the company winds up.
- Preference shares: usually get their dividend before ordinary shareholders, often at a fixed rate, but frequently carry no vote.
- Non-voting shares: economic rights without a say in decisions. Sometimes used for employees or family members.
- Redeemable shares: can be bought back by the company on agreed terms.
The class decides what a shareholder can actually do. Someone with non-voting shares gets the dividend but no control; someone with preference shares may get paid first but can’t outvote you. If you want the detail on how classes and share capital fit together, our guide to share capital and share classes goes deeper. There’s also a limit worth knowing on how many shareholders a company can have.
What does an investor pay versus what a share is worth on paper?
Shares have a nominal value, often as low as £0.01 or £1. That’s the figure on the share certificate and in the accounts, not what the share is really worth.
An investor almost never pays the nominal value. They pay what they think the company is worth, which is usually far more. The difference between the nominal value and the price actually paid is the share premium, and it sits in its own reserve in the accounts.
Our guide to share premium covers how that reserve works. The point to hold onto here is that “how much is a share worth” and “what does the certificate say” are two different questions.
Can you give an employee equity without a tax charge?
Giving an employee shares feels like a generous, informal thing to do. It’s also one of the easiest ways to create a tax bill nobody was expecting.
If you give or sell an employee shares for less than their market value, HMRC generally treats the difference as employment income. Depending on how the shares are structured, that lands either as an earnings charge under ITEPA 2003 or under the “notional loan” rules for shares acquired below market value, and where the shares are readily convertible into cash the company has to run PAYE and National Insurance on it.
The honest position: informal employee share grants create charges people don’t see coming, and the fix is usually a proper scheme and a valuation, not a handshake. This is worth advice before you promise anyone shares, not after.
What does equity do to your dividends and to SEIS or EIS?
Dividends are paid per share, pro rata within a class. Once you’ve split the equity, you’ve split the dividend stream, and you can’t quietly pay yourself more without paying everyone in that class the same per share. That’s a real constraint on how you take money out.
Equity also shapes whether an investor can claim relief. For SEIS or EIS, the shares generally have to be new, full-risk ordinary shares, paid up in cash and non-redeemable, with no preferential rights to your assets.
Issue an investor preference shares and you can hand them a better economic deal while quietly costing them their tax relief. The mechanics run deep, and seven of our pages already cover them, starting with SEIS and EIS compared and SEIS and EIS advance assurance.
One more thing on getting money out: dividends have their own tax treatment, which our guide to how dividends are taxed walks through.
How Sleek helps with equity and share issues
Share issues are hard to unwind once they’re done, and the paperwork behind them is where mistakes get expensive. Sleek handles the share issue itself, keeps your register of members accurate, and makes sure the tax treatment is right before anything is filed. A qualified accountant reviews the work, and you can see what was done and why.
We don’t draft shareholder agreements, which is legal work, and we won’t give you a company valuation.
What we will do is make sure the shares you issue are recorded correctly and structured so they don’t quietly cost you or your investors down the line.
If you want a share certificate to evidence a holding, our guide to share certificates explains how those work. And if you’re just getting your bearings, the UK resources hub has the rest of the cluster.
About to issue shares to an investor?
FAQs on what is equity
Can I give someone equity without issuing new shares?
Yes. You can transfer some of your existing shares to them instead of the company creating new ones. The difference matters: transferring your own shares reduces your holding directly, while issuing new shares dilutes everyone in proportion. A transfer can also trigger its own tax consequences for you as the person disposing of the shares.
Does giving away equity mean giving away control?
Not always. Control follows voting rights, not just ownership percentage, so you can issue non-voting or limited-voting shares and keep decision-making with the founders. That said, once someone holds ordinary voting shares, their vote is real, and enough of them together can outvote you.
How much equity should a co-founder get?
There’s no fixed answer, and anyone who gives you one without knowing your situation is guessing. It depends on who’s contributing what, over what time, and at what risk. The important discipline is to agree it before you issue the shares and to record it properly, because share issues are difficult and sometimes impossible to reverse later.
Do I pay tax when I issue shares?
Issuing shares to raise investment isn’t usually a taxable event for the company itself. The tax questions arise around the people receiving the shares, particularly employees getting shares below market value, and around the investor’s own relief. It’s the structure and the price, not the act of issuing, that drives the tax.
What's the difference between equity and share capital?
Equity is the broad idea of ownership in the company. Share capital is the specific accounting measure of what shareholders have put in, recorded at nominal value with any excess sitting in the share premium reserve. In everyday use people say “equity” to mean their ownership stake and “share capital” to mean the figures in the accounts.
What's the difference between shareholder equity on the balance sheet and equity in a company?
Shareholder equity on the balance sheet is an accounting figure: total assets minus total liabilities, showing the company’s net worth to its owners. Equity in a company, the sense this guide uses, is ownership held as shares. One is a number in your accounts; the other is who owns the business.
Does issuing shares affect SEIS or EIS relief for existing investors?
It can. New share issues, changes to share rights, or arrangements that reduce an investor’s risk can all put existing relief at risk if they breach the scheme conditions within the qualifying period. If you have investors already relying on SEIS or EIS, take advice before you issue more shares, because the relief can be withdrawn retrospectively.
