Limited company subscribers – everything you need to know

Limited company subscribers are the initial shareholders or guarantors (‘members’) who agree to form a company limited by shares or guarantee. They are referred to as subscribers because, as per the Companies Act 2006, they are “subscribing their names to a memorandum of association” during the company formation process.

If you’re planning to set up a company, it’s worthwhile understanding the role and responsibilities of subscribers, how they differ from other members, and the requirement to record and publicly disclose subscribers’ details. We discuss all of these points and more below.

Who are the subscribers of a limited company?

The subscribers of a limited company are the very first members. They will be either shareholders or guarantors, depending on whether the company is incorporated as limited by shares or limited by guarantee.

By subscribing to the company’s memorandum of association at the time of incorporation, the initial shareholders or guarantors are:

• stating their intention to register a limited company under the Companies Act 2006
• agreeing to become members of the company
• agreeing to take at least one share each, in the case of a company with share capital

The subscribers in a limited by guarantee company do not take shares, because this type of company is set up without share capital (i.e. the company does not issue shares).

Subscribers of a company limited by shares

In a limited by shares company, the subscribers are the initial shareholders. Upon taking at least one share during the company formation process, each subscriber becomes a founding member of that company.

• Issuing shares when setting up a company – know your options

• Why would I set up a limited by guarantee company?

• What rights do shareholders of a company have?

The share(s) that each subscriber agrees to take determines how much of the company they own, their profit entitlement, their decision-making power, and the limit of their liability for business debts.

Subscribers of a company limited by guarantee

In a limited by guarantee company, the subscribers are the initial guarantors. When they add their names to the memorandum during the incorporation process, they become founding members of that company.

Since this type of company does not issue shares, the subscribers (and any future members) do not actually ‘own’ the company in the way that shareholders own stock in a company limited by shares.

Rather, guarantors control and participate in the company. This entails appointing directors to run the business, voting on important decisions, and providing a ‘guarantee’ to pay a specified sum of money if the company becomes insolvent.

In most limited by guarantee companies, the subscribers and future members do not receive any share of the profits.

The rights and responsibilities of limited company subscribers

The rights and responsibilities of limited company subscribers are set out in a governing document known as the articles of association. Some limited by shares companies also include this information in a shareholders’ agreement.

Since it is the subscribers who form a company and make the initial decisions on company rules and members’ rights, they have a great deal of freedom in this respect. This is provided that all such matters are in accordance with the Companies Act 2006 and any other legislation applicable to the company.

Typically, all limited company members (including subscribers) have the right to:

• appoint and remove directors
• attend and speak at general meetings
• vote on matters that are beyond the scope of the directors’ powers
• receive a share of company profits by way of dividend payments (if the company is limited by shares)
• make changes to the articles of association
• receive a copy of the annual accounts
• inspect the statutory company registers
• inspect copies of the directors’ service contracts
• appoint auditors or make a request to the directors to get the accounts audited
• participate in a distribution of capital upon the winding up of the company

Whilst the members of a limited by shares company normally receive a share of the profits, this is not usually the case in a limited by guarantee company.

There is no statutory prohibition on distributing profits to guarantors, unless the company includes provisions to that effect in its articles. However, most limited by guarantee companies reinvest their surplus income in the business instead.

Do all subscribers have equal rights?

In a limited by shares company, the voting rights and dividend rights of subscribers depend on the class of shares they own, and how many. This means that a company can either:

• provide equal rights by issuing the same number of shares of the same class to each subscriber, or
• vary the rights of subscribers by issuing different quantities and/or classes of shares

In a limited by guarantee company, the subscribers have equal voting rights under the Model articles of association. That is, one vote per person when making decisions on company matters.

However, it is possible to vary the rights of guarantors by creating different classes of membership in bespoke articles – e.g. voting members and non-voting members.

Are subscribers responsible for the debts of the company?

Like all members, limited company subscribers are only responsible for the debts and liabilities of a company up to:

• the fixed nominal value of the shares they hold – if the company is limited by shares
• the specified amount of their guarantee – if the company is limited by guarantee

The nominal value of shares and the sum of guarantees are usually just £1. If a company becomes insolvent or is wound up (dissolved), the members have no legal obligation to contribute any more than the amount unpaid on their shares or the guarantee sum they have promised to pay.

• Are shareholders and directors liable for company debts?

If any subscriber is a member of a limited by guarantee company at the time that it is wound up, or they ceased to be a member within the past year, they must contribute the specified amount of their guarantee toward:

• payment of company debts and liabilities contracted before they ceased to be a member
• payment of costs, charges, and expenses incurred as a result of winding up, and
• adjustment of the rights of the contributors among themselves

These requirements are included in the statement of guarantee, which the subscribers must complete as part of the application to register a company.

How many subscribers can a company have?

All private companies must have at least one subscriber when they are incorporated. There is no upper limit – you can set up a company with as many people as you like.

Can anyone be a limited company subscriber?

Any person can be a subscriber of a limited company, including a natural person or a corporate entity (i.e. another company).

There is no minimum age requirement to be a subscriber or member of a company.

In many companies, the subscribers are also the directors. This is common practice when setting up a small company with only one or two people.

Is there a difference between subscribers and members?

All subscribers are members of a company, but not all members of a company are subscribers.

The members are the shareholders or guarantors. However, they are only classed as subscribers if they are founding members and added their names to the memorandum during the company formation process.

Even if a subscriber leaves a company and ceases to be a member at some point in the future, they will still be classed as a subscriber, because their name will always be present on the memorandum.

The memorandum of association can never be altered. It exists in its original state for the lifetime of the company.

Is there a difference between subscribers, shareholders, and guarantors?

The subscribers of a company limited by shares are shareholders. The subscribers of a company limited by guarantee are guarantors.

However, any person who becomes a shareholder or guarantor of a company after incorporation is not a subscriber. The reason is that they did not become members during the company formation process.

Therefore, the only real difference between subscribers and other shareholders or guarantors is the point at which they became members of the company.

That being said, it is commonplace for subscribers to retain a higher percentage of shareholdings, profit entitlement, and/or voting rights than newer members. By doing so, they can maintain majority control of the company.

Are subscribers also classed as people with significant control (PSC)?

A limited company subscriber will only be classed as a person with significant control (PSC) if they satisfy at least one of the following conditions:

• Hold more than 25% of the company’s shares
• Hold more than 25% of the voting rights in the company
• Have the right to appoint and remove a majority of the board of directors
• Influence or control the company through other means, either directly or on behalf of someone else

In small companies, all or most of the subscribers are also people with significant control.

It is usually very easy to determine how much influence or control each person has.

• What is a person with significant control (PSC)?
• How to register a PSC for a company

However, in large companies, or those set up with multiple shareholders or guarantors, some of the subscribers may not be considered PSCs. It depends entirely on their shareholdings and/or the class rights set out in the articles of association.

Keeping subscribers’ details up to date

On the formation of a new company, certain information becomes a matter of public record on the Companies House register. This includes the name, service address, and shareholdings (where applicable) of each subscriber.

Every company must also keep its own statutory register of members, which should include the details of all subscribers.

If a subscriber is a PSC and/or a director, the company must also record their details in the register of people with significant control (PSC register) and/or the register of directors.

If there are any changes to a subscriber’s details after incorporation, or they cease to be a member, the relevant registers must be updated as soon as possible.

• Register of members – everything you need to know

You must also notify Companies House of any such changes on the following form(s):

• Confirmation statement – to update shareholders’ details (but not guarantors’ details)
• Form PSC04 – if the individual is also a PSC
• Form CH01 – if the individual is also a director

There is no need to update shareholders’ service address details at Companies House, unless you elect to keep your statutory company registers on the public register. Some companies choose to do this as an alternative to keeping their own statutory registers at their registered office or SAIL address.

In a limited by guarantee company, the requirement to update subscribers’ details does not apply, unless you elect to keep your statutory register of members information at Companies House.

In these situations, you must file form EH06 with Companies House to update information about the subscribers or other members.

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If you have any questions about this topic, or need advice on setting up a company limited by shares or guarantee, please leave a comment below or contact our company formation team.