Home Knowledge UK Business Registration UK Company Registration Difference Between an Individual Shareholder and a Corporate Shareholder in the UK
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Right to vote Right to vote includes electing directors and proposals for fundamental changes affecting the company such as mergers or liquidation. Voting usually takes place at the company’s annual meeting. |
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Right to receive dividends When a company earns profit, the board of directors have two options. One option is to retain the profit and use it for business expansion. The other option is to decide what profit percentage will be distributed as dividend. Shareholders will receive dividend payments in proportion to the shares held or in according to the company’s articles. Dividends can be distributed in multiple times provided the company has enough retained post-tax profits. If a company has distributed the value of dividends exceed their post-tax profits, the dividend will be deemed illegal and the company could face severe consequences from HMRC. |
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Right to inspect corporate books and records Shareholders have the right to examine basic documents such as company bylaws and minutes of board meetings. |
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Right to sue for wrongful acts Shareholders have the right to sue for any wrongful act within the company. A lawsuit can be filed by the individual shareholder, a group of shareholders, or a class of shareholders. Shareholder can file a lawsuit against the executive officer/director of the company for any fraud or mismanagement, misrepresentation of financial statements or any other wrongful act done by the critical person either by ignorance or by wilfulness. |
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Corporate Interest Usually, corporations tend to have much greater resources than individual investors, corporate shareholders may buy and own huge chunks of a corporation. Corporate shareholders are likely to be more active in the policies making and the development of the invested company. Individual investors, meanwhile, may not have enough knowledge in decision making. In other instances, action by corporate shareholders could result in a corporate's strategic policies being tailored to benefit the largest investors. For example, a corporate shareholder may be interested in dividend income rather than in investing profits to grow the company. |
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Taxation Issues When an individual invests in a limited company, all dividends received are taxed as his personal income. The individual gets a dividend allowance each tax year. The dividend allowance and tax rates for the tax year to 5 April 2023 is £2,000.00 and from basic rate of 8.75% to additional rate of 39.35% depending on the total income of the individual earned in a tax year. A corporate shareholder receives dividends as the same way as an individual who invested in a company. However, as the corporate shareholder is usually another limited company, the dividends received will be treated as investments income of the company. The dividends are treated as taxable profits for Corporation Tax. For example, Company X received dividends of £10,000 from Company Y on 31/01/2022. Company X will use the same corporation tax rate (19% for 2022) as calculating for other profits to work out the tax liability for the dividends. If Company X then distributes its after tax profit as dividends to its individual shareholders, the dividends received by the individual shareholders are to be reported as their personal income and submit their Self-Assessment Tax Return to HMRC individually. |
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