Directors, shareholders and PSCs explained

Directors: management and legal duties

A private limited company needs at least one director who is a natural person. Directors must be at least 16 and must not be disqualified. A private company does not generally need a company secretary, but appointing one does not transfer the directors’ responsibility for compliance.

Directors must act within their powers, promote the success of the company, exercise independent judgement and reasonable care, avoid conflicts of interest, avoid accepting certain benefits from third parties, and declare relevant interests. The duties are owed to the company; obligations can shift in significance where insolvency is a risk.

Shareholders: ownership is not the same as management

A company limited by shares needs at least one shareholder. Share ownership can carry rights to vote, receive dividends and share in assets on a winding up, depending on the share class and articles. Holding shares does not automatically make someone a director.

The nominal value is the face value assigned to each share, not a valuation of the whole business. The statement of capital records the share structure. Where a shareholder has not paid the amount due on their shares, that unpaid amount can be relevant to liability.

PSCs: look beyond a simple share count

An individual is commonly a PSC if they hold more than 25% of the shares or voting rights. Other tests include rights to appoint or remove a majority of the board and significant influence or control. Trusts, firms, indirect ownership and corporate ownership can make the analysis more complex.

Exactly 25% alone does not meet the “more than 25%” share threshold, but a person may qualify under another control test. Do not assume an equal split means no PSC reporting is needed. Use the official guidance for all the tests and seek advice for layered ownership.

Agree co-founder arrangements before filing

A basic formation template cannot resolve every future disagreement. Decide how voting, responsibilities, funding, share transfers and a founder’s departure will work. Discuss what happens if the business needs investment or one owner wants to leave.

A shareholders’ agreement and tailored articles can address these issues, but should be drafted with proper advice. A 50/50 split may seem fair while leaving the business exposed to deadlock. Different share classes can also create legal and tax implications.

Keep role details and verification up to date

Companies House identity verification applies to directors and PSCs on the relevant timetable. A personal code belongs to an individual, not the company. The same individual may need to link their verified identity separately to each role.

Changes in directors, ownership and control may require separate filings or registers; they are not all dealt with by waiting for the next confirmation statement. Check the required reporting window for the change you make.

Worth knowing: Using an accountant or formation agent does not make them responsible for your decisions as a director.

Map votes, shares and control before entering the application

Illustrative example: two founders issue 100 ordinary shares, with 60 held by one and 40 by the other. If voting rights follow ownership and no special arrangements change control, both exceed the “more than 25%” share and voting thresholds for PSC identification. The founder with 60% is not the only PSC merely because they own the majority.

Contrast four people holding exactly 25% each. The shareholding threshold is more than 25%, so that condition alone does not identify a PSC. Other conditions, including appointment rights or significant influence or control, still need assessment. Do not conclude that there is no registrable control simply by dividing 100 by four.

Corporate shareholders, trusts, joint arrangements and indirect holdings introduce additional rules, including whether a registrable relevant legal entity should be reported. A basic “who owns the most?” question is not enough. Use the statutory PSC guidance and obtain help before submitting a complex ownership chain.

Worth knowing: The numbers of directors, shareholders and PSCs can differ. A provider supporting several directors may still restrict shareholders or share classes.

Agree governance while the founders still agree with each other

Discuss who makes day-to-day decisions, which decisions require shareholder approval, who can appoint directors and how additional funding works. A 50/50 ownership split can deadlock. Standard articles do not necessarily answer every commercial disagreement in the way founders expect.

Consider departures, illness, death, sale of shares, new investment and intellectual-property ownership. A shareholders’ agreement and tailored articles may be appropriate, but should fit together. Do not copy clauses into an online application without understanding their legal effect or consistency.

A sole founder should still document decisions, keep company funds distinct and assess conflicts of interest. Directors owe duties to the company, not simply to themselves as owners. When insolvency threatens, creditor interests become particularly important and professional advice should be sought early.

Appointing and Removing a Director: The Formal Process

Appointing a new director is typically a straightforward board-level decision, but removing one can be significantly more complex and requires direct shareholder involvement. For any appointment, the proposed director must consent to act and complete the mandatory identity verification process introduced on 18 November 2025. This digital procedure requires the individual to verify their identity against official documents, such as a passport or driving licence, via an approved government service. This is a crucial anti-fraud measure that must be completed before their appointment can be formally registered with Companies House. The board then passes a resolution to finalise the appointment and updates the company's statutory register of directors accordingly.

The process for removing a director is strictly governed by the Companies Act 2006 to protect the director's rights. Shareholders can remove a director through an ordinary resolution—a simple majority vote—at a general meeting, regardless of any conflicting terms in the director's service contract or the company's articles. The process is initiated when a shareholder gives 'special notice' of at least 28 days to the company. The company must then notify all shareholders and the director concerned. The director has a legal right to speak at the meeting and to have their written arguments circulated to shareholders beforehand. Failing to follow this precise procedure can invalidate the removal and expose the company to legal claims for wrongful or unfair dismissal.

1. 1

   To appoint a director, the existing board of directors must pass a board resolution to approve the proposed appointment.

2. 2

   The proposed director must formally consent to act and successfully complete the mandatory identity verification process.

3. 3

   The company must file form AP01 with Companies House within 14 days of the appointment, providing the director's verified details and service address.

4. 4

   To remove a director, a shareholder must provide the company with 'special notice' of at least 28 days, indicating their intent to propose an ordinary resolution for removal.

5. 5

   The company must then call a general meeting, giving all shareholders at least 14 clear days' notice and circulating the proposed resolution and any representations from the director.

6. 6

   Shareholders vote on the ordinary resolution at the meeting; if passed by a simple majority, the removal is effective immediately.

7. 7

   Following a removal, the company must file form TM01 with Companies House within 14 days and update its statutory registers.

Worth knowing: Director appointments are a board matter requiring identity verification, whereas removals are a shareholder right requiring a strict, notice-driven formal voting process to be legally effective.

Paying Directors, Shareholders, and Employees: A Comparison

Deciding how to extract value from your company is a critical decision for founders, with the main routes being salaries, dividends, and director's loans. Salaries paid to employees, including directors with an employment contract, are a business expense that reduces the company's Corporation Tax liability. However, they are subject to Income Tax and National Insurance Contributions (NICs) for the employee, and also employer's NICs for the company, processed through the PAYE system. For the 2026/27 tax year, employer's NICs are 15% on earnings above the secondary threshold of £5,000 per year. The Employment Allowance may cover the first £10,500 of this liability for eligible small employers, making a small salary tax-efficient.

Dividends are payments made to shareholders from the company's post-tax profits. Because they are not a business expense, the company must first pay Corporation Tax (at 19% on profits up to £50,000, rising to 25% for profits over £250,000) on the profits before dividends can be distributed. For the shareholder, dividend income is taxed at lower rates than salary income and is not subject to NICs. Each individual has a tax-free Dividend Allowance of £500. This makes a combination of a small salary and larger dividend payments a popular and efficient strategy for director-shareholders. However, dividends must be legally declared and paid only from sufficient distributable profits, and they must be paid to all shareholders of a single class in proportion to their shareholdings.

A director's loan is money a director borrows from their company that is not a salary, dividend, or expense reimbursement. If a loan exceeds £10,000 at any point and is not repaid within nine months of the company's year-end, the company faces a temporary Corporation Tax charge (a 'section 455 charge') on the outstanding balance. The director may also be taxed on a benefit-in-kind if the loan is interest-free or provided at a rate below the official HMRC rate. While director's loans offer short-term flexibility, they are complex to administer and are scrutinised by HMRC. They must be formally approved by the board (and sometimes shareholders) and are not a sustainable method for long-term remuneration.

Worth knowing: Salaries reduce company profit but incur NICs for both parties, while dividends are paid from post-tax profits but are generally more tax-efficient for the individual recipient.

Decision-Making: Ordinary vs. Special Resolutions

Shareholder decisions are formalised through 'resolutions' passed at general meetings. The two principal types, ordinary and special resolutions, are differentiated by the voting majority required, reflecting the significance of the decision being made. An ordinary resolution is the standard mechanism for most shareholder business and requires a simple majority to pass. This means it is approved if more than 50% of the votes cast by shareholders (attending in person or by proxy) are in favour. This democratic principle of majority rule is used for routine governance matters, such as authorising directors to allot new shares, approving a director's long-term service contract, or declaring a final dividend recommended by the board. Its purpose is to enable the efficient day-to-day running of the company at the shareholder level.

A special resolution imposes a much higher threshold of agreement and is legally required for fundamental changes to the company's constitution or structure. To pass a special resolution, a supermajority of not less than 75% of the votes cast by shareholders must be in favour. This provides significant protection for minority shareholders against major changes they oppose. Actions that mandate a special resolution include altering the company's articles of association, changing the company name, reducing its share capital, or obtaining shareholder approval to wind up the company voluntarily. The notice sent to shareholders for a general meeting must explicitly state the full text of the resolution and the intention to propose it as a special resolution, a stricter requirement than for ordinary resolutions.

Worth knowing: Use ordinary resolutions (>50% vote) for routine shareholder business and special resolutions (≥75% vote) for fundamental constitutional changes, ensuring you meet the stricter notice and filing requirements for the latter.

Authorised vs. Issued Shares: Managing Your Company's Capital

Understanding your company's share structure is fundamental to managing ownership and future investment. A key, though now partly historic, distinction is between 'authorised' and 'issued' share capital. For companies formed before 1 October 2009, the authorised share capital represented a ceiling on the number of shares the company was permitted to issue, defined in its memorandum of association. While companies formed under the Companies Act 2006 do not have this concept by default, it can still exist if specified in the articles. This limit can be a practical barrier when seeking new investment, as it may require a shareholder resolution to increase the authorised amount before new shares can be created and offered to investors.

Issued share capital, on the other hand, represents the shares that have actually been allotted to shareholders and are in circulation. This is the figure that defines the current ownership structure. For example, a company with 100 issued shares gives each share 1% of the ownership and voting rights. The process of creating and distributing new shares is known as an 'allotment'. This action must be properly authorised by the directors and sometimes by shareholders, especially if it dilutes existing owners. A common mistake is to issue all available shares at incorporation, leaving no flexibility for an employee share scheme or future funding rounds without a complex reorganisation of the company's capital.

• Companies incorporated under the Companies Act 2006 have no limit on the number of shares they can issue unless they voluntarily add one to their articles.
• To issue new shares (an 'allotment'), directors typically need authority from the articles or from an ordinary shareholder resolution.
• Statutory pre-emption rights give existing shareholders the first opportunity to buy new shares pro-rata to their current holding. These rights can be cancelled by a special resolution.
• After allotting new shares, the company must file a 'Return of allotment of shares' (Form SH01) with Companies House within one month, detailing the new shares issued.
• It is wise to incorporate with a small number of issued shares (e.g., 100 shares of £0.01 each) to provide flexibility for future allotments without needing to subdivide shares.
• The price at which new shares are issued must not be less than their 'nominal value' (e.g., £0.01 in the example above); any amount paid above this is known as the 'share premium'.

Worth knowing: Focus on managing your 'issued' shares for day-to-day ownership and ensure you have the flexibility and proper authority to allot new shares for future growth.

Selling Shares: Tax Implications for Founders

For most founders, a significant financial return is realised upon selling their shares in the company. This disposal is subject to Capital Gains Tax (CGT) on the 'gain'—the profit made from the sale. This gain is calculated by subtracting the shares' original acquisition cost from the sale proceeds. For the 2026/27 tax year, after deducting your personal annual CGT exemption, the remaining gain is taxed at specific rates. Based on the rules effective from 6 April 2026, basic rate taxpayers pay 18% on gains from shares, while higher and additional rate taxpayers pay 24%. This tax liability is a critical factor in determining the net cash you will receive from a business exit, a sale to a new investor, or even a share buyback by the company.

The most valuable tax relief for entrepreneurial shareholders is Business Asset Disposal Relief (BADR), which significantly reduces the rate of CGT. If all qualifying conditions are met, BADR allows an individual to pay a reduced tax rate of 18% on gains from disposals made after 6 April 2026. This relief can be claimed on up to £1 million of eligible gains over a person's lifetime. To qualify, the company must primarily be a 'trading' company. Crucially, for at least two years leading up to the sale, the individual must have been an employee or officer of the company and owned at least 5% of both the ordinary share capital and the voting rights. Failing to meet any one of these conditions means the full CGT rates of 18% or 24% will apply.

• **Trading Status:** The company must be a trading company or the holding company of a trading group. Companies whose activities are substantially investment-based do not qualify.
• **Holding Period:** You must have owned the shares for a continuous period of at least two years immediately prior to the date you sell them.
• **Employment Condition:** For the same two-year period, you must have been an officer (e.g., a director) or an employee of the company.
• **Shareholding Threshold:** Throughout that two-year period, you must have held at least 5% of the company's ordinary share capital, which must also provide you with at least 5% of the voting rights.

Worth knowing: Business Asset Disposal Relief can reduce your Capital Gains Tax rate on a share sale from 24% to 18% (as of April 2026), but you must meet strict 5% ownership and two-year holding period rules, as illustrated by the £30,000 saving on a £500,000 gain.

Statutory Registers and Filing Obligations: Avoiding Penalties

A UK limited company is legally required to create and maintain a set of 'statutory registers', which constitute the official internal record of its constitutional affairs. While much of this information is also filed publicly at Companies House, the company must keep its own complete and up-to-date registers, which can be inspected by shareholders or the public upon request. These essential records include the register of members (the definitive list of shareholders), the register of directors, the register of directors' residential addresses (which is kept private), and the PSC (People with Significant Control) register. Failure to maintain these registers accurately is an offence committed by both the company and its officers, which can lead to fines. These records must be available for inspection at the company's registered office or a designated Single Alternative Inspection Location (SAIL).

Directors are also responsible for ensuring the company meets its annual filing obligations with government bodies. The two most critical filings for Companies House are the confirmation statement and the annual accounts. The confirmation statement confirms the company's key information is correct and costs £50 to file digitally. It must be filed at least once every 12 months. The annual accounts must be filed within nine months of the company's financial year-end, with late filing resulting in automatic penalties starting at £150 and increasing sharply with the length of the delay. Furthermore, if the company processes any personal data, it must register with the Information Commissioner's Office (ICO) and pay an annual data protection fee. For most small businesses this fee is £52 or £78, depending on turnover and staff numbers.

Worth knowing: Diligently maintain your internal statutory registers and diarise the annual filing deadlines for your confirmation statement, accounts, and ICO registration to avoid automatic penalties and the risk of company strike-off.

Common questions

Official sources & further reading

This guide draws on the official guidance below. Rules, fees and individual circumstances can change; check the relevant source before acting.

• GOV.UK: Directors and company secretaries
• GOV.UK: Shareholders and guarantors
• Companies House: PSC guidance
• Companies House: General director duties

General UK information, primarily for private companies limited by shares. This is not personalised legal, tax or financial advice. An accountant or solicitor can help apply the rules to your situation.