Shares

What are shares?

You may own a smartphone or a car. When you have shares, you also own (a part of) a company. After all, ownership of a company is represented by shares. So anyone who holds one or more shares in a company is a partial owner.

A share is a security that represents a part of the capital or the equity of a business, giving the owner a number of rights in the governance of that company. Why does it say capital and equity here? Because although both a private limited company (BV) and a public limited company (NV) can issue shares, the new Belgian Companies Code has taken a somewhat different view since 1 January 2020. For the NV, a minimum cash contribution by the founding shareholders applies at incorporation: the capital. That minimum has been abolished for the BV. So can you start a BV with barely 1 euro? Not really, because the law requires founders to ensure that the starting amount is sufficient to operate for (at least) the first years.

As soon as you hold one or more shares in a company, you are a shareholder and therefore a co-owner of that company. Which part you own depends on your number of shares out of the total number representing the entire equity. For example, if you founded a company together with your brother and you each hold 50% of the shares, you each own half of the business.

How do shares work?

When the company is incorporated, the founder (or founders) decides how many shares will represent the equity and possibly what value the shares in the company have. Possibly, because a valuation is not necessary; it is enough to state how many shares each shareholder holds in the initial equity. This is laid down in the deed of incorporation. Shares with a fixed value have a so-called nominal value. At many companies, the shares have no nominal value, but simply represent a certain percentage of the equity. For companies with a nominal capital – nominal means determined or named – the total capital equals the value of each share multiplied by the number of shares. There is no minimum for either the number of shares or the value per nominal share.

You can issue 10 shares, 100, 480, … you choose the number yourself. Think about the future and choose a number that is easily divisible. That way, you stay flexible should a new shareholder join or leave, and you can easily divide in percentages.

All these shares are therefore held by the shareholders. This gives them the right to make decisions about the company; specifically, that means voting rights at the General Meeting (GM), NOT in day-to-day management. If you have 50 of the 100 shares, your vote counts for half of the 100 votes at the GM. So when you think of ‘shareholders’, don’t immediately think of very large businesses: you can perfectly well have only 2 shareholders in your company.

Why can your company issue shares?

Issuing new shares means attracting new money from investors for the equity. At private companies that are not listed on the stock exchange, this happens within a limited circle. Larger companies that are listed do so through a (mandatory) public offering that involves many formalities, including the publication of a mandatory information brochure, the so-called prospectus. This is done, among other things, to top up equity that has fallen too low, or because activities are growing strongly and require extra financing. Those funds then become part of the equity in the form of extra shares.

All shares, including yours, entitle the holder to a part of the result, i.e. a part of the profit if it is distributed, or a part of the loss, which reduces the value of each share. The most important characteristic of a share is that a company does not have to repay the money contributed; it is so-called risk capital. Only when a profit is made can shareholders request a part of it as a distribution, the so-called dividend.

Shares in so-called capital companies – typically an NV – can change owner through sale, but also through donation or otherwise (inheritance). In partnerships, shares are usually not freely transferable, partly because the articles of association make transfer subject to conditions. Transfer takes place via the share register, which lists all owners and their number of shares. For publicly listed companies, the electronic accounts at recognised institutions are used (see below).

Types of shares

There are many differences between shares. For example, founders can distinguish from the start between, say, A and B shares, where one has different rights from the other. One example is that one of them is a preference share that entitles the holder to a larger part of the profit. There are profit shares that only entitle the holder to a part of the profit (and have nothing to do with losses) but do not give voting rights at the GM. In the past, there was a distinction between registered shares and bearer shares. With the latter, possession of the share – usually a printed document – was proof of ownership. In Belgium, all shares are dematerialised, which means they must be held in an electronic account at a recognised (usually financial) institution. As a result, they are of course registered, because the owner is known in the accounts.