How to Prepare Share Capital Notes for UK Startup Accounts: Practical Compliance Guide

Understanding Share Capital in Your UK Startup Accounts

Closing a funding round is a significant milestone, but the operational follow-up can be daunting. Once the new capital hits the bank, attention quickly turns from pitching to paperwork. For UK founders, this means navigating Companies House filings and preparing annual accounts that accurately reflect the company’s new capital structure. The share capital note within these accounts is not just a formality; it is the official, public record of your company’s ownership story. Getting it right is fundamental for compliance, future fundraising, and maintaining investor trust. This guide provides a practical walkthrough of how to report share capital in UK company accounts, ensuring your filings are as robust as your business plan.

The Cap Table vs. The Share Capital Note: Your Official Equity Story

It is essential to distinguish between your capitalization table (cap table) and the share capital note in your statutory accounts. Your cap table, likely managed on a spreadsheet or a platform like Carta or Capdesk, is a detailed, real-time operational tool. It tracks every shareholder, option holder, and convertible note, providing a comprehensive view of your ownership structure for internal management and investor relations. It is dynamic, used for modelling funding scenarios and managing your employee option pool.

The share capital note, however, is a formal, statutory disclosure. It is a summary presented in your annual accounts, designed to give stakeholders a clear, compliant overview of your equity. While the cap table contains the granular data, the note synthesises this data into a format that meets legal requirements. The reality for most startups is pragmatic: the cap table is for managing equity day-to-day, while the share capital note is the official, audited record filed publicly. Misalignment between these two documents can create significant challenges during due diligence, an audit, or a future exit event.

What to Disclose: How to Report Share Capital Movements

Knowing what to include in the share capital note is crucial for UK startup equity compliance. The primary goal is to transparently present the changes in your company's issued share capital during the financial year. Disclosure requirements are governed by UK accounting standards, primarily FRS 102, and the Companies Act 2006. Clarity and completeness are key.

Core Reconciliation of Share Movements

The core of the note is a reconciliation of share movements. This typically takes the form of a table or structured text showing the number of shares and their value at the beginning of the year, any shares issued or cancelled during the year, and the closing balance. According to the Companies Act 2006, for each class of share, you must state the number of shares issued and their total nominal value. This means you must clearly separate different classes, such as Ordinary Shares, and any Preference Shares issued to investors during a funding round.

A compliant note must show, for each class of share:

• The number of shares authorised and issued.
• The nominal value per share.
• A reconciliation of the number of shares outstanding at the beginning and end of the period.
• The rights, preferences, and restrictions attached to that class (e.g., regarding dividends, voting, and return of capital).

Disclosing Different Share Classes

Accurate share class disclosure is vital. A simple startup share structure may only have Ordinary Shares. However, after a funding round, you will likely have multiple classes, such as Seed Preference Shares or Series A Preference Shares. Each must be reported separately because they carry different rights. For example, preference shares often have liquidation preferences, anti-dilution provisions, or specific voting rights that are not available to ordinary shareholders. Your share capital note must describe these key terms to provide a true and fair view of the capital structure.

Reporting Your Employee Option Pool

What about your employee option pool? It is important to note that share options and warrants must be disclosed, but they appear in a separate note, not within the main share capital reconciliation. They are not included in the main share capital note because they represent potential shares, not issued shares. Your statutory accounts share capital note only deals with shares that have actually been allotted and paid for. The separate note on share-based payments should detail the number of options outstanding, their exercise prices, and the conditions of exercise. This distinction is critical for accurate reporting and avoiding confusion for anyone reading your financial statements.

Getting the Numbers Right: Nominal Value vs. Share Premium

One of the most common points of confusion for founders is how to correctly allocate the cash received from a funding round between nominal value and share premium. This allocation directly impacts your balance sheet and is a frequent focus of auditors. Understanding the distinction is essential for correct equity round documentation.

• Nominal Value (or Par Value): This is a fixed, arbitrary value assigned to each share when the company is incorporated, for example, £0.001 per share. It has no relation to the actual market value. The total nominal value of all issued shares constitutes the ‘Share Capital’ line item on your balance sheet. This figure represents the company's permanent legal capital.
• Share Premium: This is the amount paid by an investor for a share that is above its nominal value. The vast majority of cash raised in a funding round will fall into this category. The share premium account is a separate component of equity on the balance sheet and is a form of capital reserve.

A scenario we repeatedly see is a SaaS startup raising its first seed round. Let’s walk through an example:

• Fundraise: £500,000
• New Shares Issued: 100,000 Ordinary B Shares
• Nominal Value per Share: £0.01

To correctly account for this, the calculation and bookkeeping steps are:

1. Calculate Total Nominal Value: 100,000 shares × £0.01 per share = £1,000. This amount is credited to the ‘Share Capital’ account in your accounting system.
2. Calculate Share Premium: £500,000 (total cash received) - £1,000 (total nominal value) = £499,000. This amount is credited to the ‘Share Premium’ account.
3. Record the Cash: The full £500,000 is debited to your bank account.

In your accounting software like Xero, you must ensure these two amounts are posted to the correct equity accounts on your balance sheet. Correctly allocating funds between nominal share capital and share premium is essential to prevent a misstated balance sheet, which could cause complications with audits and future investors reviewing your records.

The Reconciliation Challenge: Aligning Your Cap Table, Accounts, and Companies House Filings

Ensuring your cap table, your statutory accounts, and your Companies House records are perfectly aligned is a major operational challenge for growing companies. Discrepancies are common, often stemming from simple administrative errors made in the busy period following an equity event. These errors can become significant problems during due diligence, creating delays and undermining investor confidence.

The Critical Role of the SH01 Form

Every time you issue new shares, whether in a major funding round or a one-off issuance to an advisor, you must document it legally and officially. This involves a critical piece of compliance: the SH01 form. Per UK regulations, SH01 forms must be filed with Companies House after each share issuance. This form, officially titled ‘Return of allotment of shares’, notifies Companies House of the new shares, including the number allotted, their nominal value, the amounts paid, and the updated statement of capital for the company.

Crucially, the deadline for filing an SH01 form is within one month of the share allotment. Missing this deadline can result in penalties and creates a public record that is out of sync with your internal records. The data on your SH01 filings becomes the source of truth for the public record at Companies House, and it is this record that your annual accounts must reconcile with.

A Step-by-Step Workflow for Equity Reconciliation

To prevent issues with Companies House equity filings and statutory accounts, implement a clear workflow immediately following any share allotment. This process ensures that your cap table reflects the legal reality, your Companies House file is up to date, and your accountant has the correct information.

1. Legal Execution: The funding round closes, and all legal documents, such as the subscription and shareholders' agreement, are signed. The new capital is received in the company's bank account.
2. Board Resolution: The board of directors formally approves the allotment of the new shares. The date of this resolution is the 'allotment date'.
3. File the SH01 Form: Within one month of the allotment date, file the SH01 form with Companies House. This is a non-negotiable, immediate step. Double-check all details, including the number of shares, class, and nominal values.
4. Update the Cap Table: Immediately after filing the SH01, update your internal cap table (e.g., on Carta or a spreadsheet) to reflect the new issuance. The details must match the SH01 exactly.
5. Update Accounting Records: Inform your accountant or bookkeeper of the transaction, providing them with the breakdown between share capital and share premium so they can make the correct journal entry in your bookkeeping system.
6. Annual Accounts Preparation: When preparing your annual accounts, your accountant will use the SH01 filings and your reconciled cap table as the basis for drafting the share capital note. This ensures all three sources are perfectly synchronised.

Reconciling these three sources is not a one-time task but an ongoing discipline essential for sound corporate governance.

Practical Steps for Compliant Equity Reporting

For founders managing finance without a dedicated team, maintaining accurate equity records requires a disciplined process. Here are four practical steps to ensure your share capital note is always correct and compliant, preventing issues that could derail a future audit or fundraising effort.

First, make filing the SH01 form an immediate priority after any share allotment. Set a calendar reminder. The one-month deadline is strict. Prompt filing prevents your public record at Companies House from becoming outdated, which is the most common source of reconciliation headaches later on.

Second, treat your cap table as your operational source of truth, but always reconcile it against formal filings. After an SH01 is filed, cross-reference the details with your cap table to confirm alignment. This simple check can catch errors before they compound and become difficult and expensive to fix.

Third, when a funding round closes, proactively instruct your bookkeeper or accountant on how to split the proceeds in your accounting system. Provide them with the nominal value per share and the total number of shares issued. This ensures the amounts are correctly recorded in the Share Capital and Share Premium accounts from day one.

Finally, provide your accountant with a copy of your reconciled cap table and a summary of all share movements when they prepare your statutory accounts. This context helps them draft an accurate share capital note that tells the correct story of your equity movements and meets FRS 102 disclosure requirements. This ensures your UK startup equity compliance is robust and ready for scrutiny. For more guidance, see our hub on statutory financial reporting.

Frequently Asked Questions

Q: What are the most common mistakes startups make in their share capital notes?
A: The most frequent errors include failing to reconcile the note with Companies House SH01 filings, incorrectly allocating proceeds between share capital and share premium, and omitting disclosures for different share classes. Another common mistake is including unissued options from an employee pool in the issued share capital figures.

Q: How do I report shares issued for non-cash consideration, like for services from an advisor?
A: Shares issued for non-cash consideration must also be reported. The transaction should be recorded at the fair value of the services received or the fair value of the shares issued, whichever is more reliably measurable. This value is then split between share capital (based on nominal value) and share premium, and an SH01 form must still be filed.

Q: What happens if I discover a mistake in a past SH01 filing or my statutory accounts?
A: For minor errors in an SH01 form, you may be able to file a corrected version (RP04 form). For more significant errors in filed accounts, you may need to file amended accounts. If the error relates to a fundamental misunderstanding of the share structure, you might need legal advice, as a court order could be required to rectify the register of members.