The Internal Structure of Property Limited Companies: Shareholders, Directors and Share Structures
- Moubin is Founder and CEO of GetGround, the UK's only buy-to-let limited company creation and management platform. Training initially as a medical doctor, Moubin then worked for Apax Partners and later McKinsey & Company before founding GetGround in 2019.
The popularity of the limited company structure for property investment continues to grow, and a major reason is the tax-efficient nature of the company structure. At the same time, there are multiple other benefits of using a limited company for tax investment, with one of these being the ability to easily invest with others.
We often see limited companies made up of multiple shareholders, and understanding how the structure between investors works is vital for successful and profitable investing. Let’s take a look at the internal structure of property companies…
Limited Company Directors
It is a legal requirement that a company has at least one director in it. This is because the director has the legal responsibility for managing the limited company. This includes keeping any company records, paying Corporation Tax, and filing company accounts and the company tax returns.
A company can have multiple directors, but again, is only required to have one. In most cases, a director is also a shareholder, but not all shareholders will be directors.
Limited Company Shareholders
A shareholder is not legally responsible for the running of the property company in the same way that directors are. Essentially, they are an individual who owns shares in that company and as a result, they receive company profits through dividends. In the same way that there is a
legal condition that all companies must have at least one director, they also need to have at least one shareholder.
A shareholder can own all of the shares in the company. Although, shares can also be split equally or unequally between multiple shareholders. Let’s take a look at an example. With the assumption that this company has 4 ordinary shares, one shareholder can own 1 share and another can own 3 shares. They will then respectively own 25% and 75% of the company. Shareholders tend to have voting rights and influence in the running of the company. As mentioned, they might also be paid dividends through company profits — this is based on the % shareholding they have. So, that aforementioned shareholder with 1 out of 4 shares in the company, would typically be entitled to 25% of the earnings.
So, Should the Company’s Shareholders and Directors be People or Entities?
Property companies allow for shareholders and directors to be entities, such as trusts, LLPs or other companies, but it is better when they are formed of actual individuals. The main reason for this is that often the better buy-to-let financing options will make this a primary condition of their offer — giving investors access to not only more but better mortgage products. Due to this, all GetGround companies only have individuals as shareholders and directors.
Share Structure for Property Companies
Companies can be made up of different types of shares, such as Ordinary shares and Alphabet shares, as well as many others. For companies holding properties, it is best to keep the structure simple. This makes it easier for investors to manage and allows for much quicker due diligence by a mortgage lender’s lawyers. That’s why using Ordinary shares as the share type for a property company is often the best choice.
What are Ordinary Shares Exactly?
Essentially, this share type means that each share gives the owner one ‘vote’ per share. This prevents complications, as certain share types have shares with more voting powers than others. Having one vote per share simplifies the entire share structure, resulting in more efficient and simpler property investing.
Setting up Your Property Company
Keeping the above in mind, it is important to how a property company is structured, who is assigned as the directors or shareholders, and the way shares are allocated within a chosen share structure. This can set investors up for success when property investing.
The importance of getting this right means it is beneficial to use a specialist provider of property company management services to not only set up and structure the company but also to manage the ongoing financial and secretarial administration of the company.
This article is intended only as general information and is not intended to form financial advice or tax advice on the subject of setting up a property company. It is essential to take advice from a professional adviser before taking any action.