Shares, funding and options | Basic funding

Next blog:

Episode 3
Issuing options to an employee and how an option is exercised and turned into a share

Angel Investor

The Angel Investor has agreed to invest £50,000 into the company in exchange for a 33% stake.

Share Issuance

Before the investment there are 4 Ordinary Shares. Therefore the Angel Investor is issued with 2 newly created Ordinary Shares in exchange for £50,000. And therefore the Angel Investor has a 33% stake (2 out of 6 issued shares).

Notice that the Founder has not sold their shares. Instead the Founder has had their shareholding diluted from the newly issued shares.

New class of share

It is not uncommon for an investor to receive a new class of shares when they make their investment. This new class of share needs to be created in the articles of association and this new set of articles needs to be submitted to Companies House.

Typical rights associated with a new class of shares might include the right to appoint a director or a liquidation preference (such that the original £50,000 is repaid first and the remaining funds are distributed proportionally).

Next blog:

Episode 3
Issuing options to an employee and how an option is exercised and turned into a share