A corporate shareholder is a term used to describe a company owning shares in another limited company. A corporate shareholder may refer to another limited company, a group of companies, a general partnership or limited liability partnership, a non-profit organization or charity, a trust, or a community interest company (CIC). A corporate shareholder is a non-human legal entity that is capable of owning shares.
A corporate shareholder's rights are the same as a non-corporate shareholder's rights. These rights are defined in the prescribed details attached to their shares.
Most of the supply of the shares:
- The right to earn a percentage of corporate profits as dividends.
- The right to vote at meetings in general.
- The right to earn a capital contribution.
Like all shareholders, there is limited liability for corporate shareholders for debts. As a result, they should pay the price of their shares if the company asks them to do so. That is the scope of the company's financial liability.
A corporate shareholder's advantages and disadvantages
It can be beneficial to have a corporate shareholder that is also an external investor. Especially for a new business that requires start-up capital, the viability of an established business, and specific knowledge and expertise to generate brand value and promote themselves effectively.
Being backed by a corporate shareholder investor could make it easier for suppliers and manufacturers to access favourable rates and terms of payment.
On the other hand, this can result in a loss of ownership and control over the management of the business. As a result, other shareholders, especially minority ones, may become dissatisfied. This is when an agreement with the shareholders is essential.
The level of control you want them to have is important to think carefully. Keep in mind that when a corporate shareholder owns more than 50 percent of the issued stock in another limited company, the corporate shareholder becomes the parent company because it holds the majority of ownership and control in the' subsidiary.'
A corporate representative has to be appointed by a corporate shareholder to attend general meetings who perform voting rights on their behalf, sign relevant documentation (like a Members Resolution), and represent their needs. This position is usually carried by a director of the corporation who owns the shares.
The representative will behave as if they were the investor, but they can only act under the powers granted by the owner of the company.
For different shares or classes of shares, some corporate shareholders appoint different representatives. This occurs when every company director decides to say the same thing in the way their company is represented as a shareholder.
How will you add a corporate shareholder?
You can add a corporate shareholder during or after incorporation.
- The corporate body may take shares during the company formation process. The corporate body will then be registered at Companies House as a member (shareholder). Their information is disclosed on the public record and reported on the memorandum of association.
- After incorporation, shares can also be sold to the corporate body. This can be achieved by selling existing shares using a stock transfer form, or by creating and selling new shares by completing a Return of Allotment.
The new corporate shareholder must obtain a certificate. Your registered name and official address should be entered in your members' register.
Additionally, while filing your next confirmation statement (formerly called an 'annual return') at Companies House, you should provide information about the corporate shareholder and their shareholdings.