In order to form a private limited company, one or more shares must be issued. This must be set out in a 'statement of capital' and normally distributed amongst directors and investors. The only exception is in the case of companies limited by guarantee (eg charities and non-profit organisations). The proportion of shares given to each shareholder at the outset will generally reflect the value of their contribution - either in terms of initial investment or skills and experience - to setting up the business.
An established company may need to create additional shares if it wants to bring in a new investor, as a way of providing them with equity in the business. This may be with a view to funding a new project, taking on a new member of staff or simply expanding the business.
Negotiating business deals
New shares can be issued to offset company debts or as a bargaining chip when trying to acquire another business. A new business partner may demand a certain number of shares before they come on board.
Employee share schemes
Some companies offer shareholder contracts to their employees, in exchange for giving up certain employment rights such as unfair dismissal or statutory redundancy pay. John Lewis is well known for distributing its annual profits amongst staff and many other companies are offering this type of model to attract new talent. Occasionally, shares may also be offered to staff in lieu of cash bonuses.
For more information on these schemes, read Employee share schemes.