Corporate and Business Law (Global) · The formation and constitution of a company

Share Capital Basics and Company Name Rules

Updated 11 October 2026 · Fact-checked

A company's name must follow the rules of its legal system: it must show its type (such as Ltd or plc), be unique, and not be offensive or mislead. Share capital is the money raised by issuing shares, which come in classes with different rights. You solve questions by matching facts to the rule.

Understand Share Capital Basics and Company Names

A company is a separate legal person. Like any person, it needs a name and an address. Both are recorded on a public register so that outsiders know who they are dealing with.

The company name must usually end with a word or abbreviation showing its form, such as limited (Ltd) or public limited company (plc). Most legal systems also refuse a name that is the same as, or too like, one already on the register. They refuse names that are offensive, suggest a criminal link, or imply a status the company does not have (for example, suggesting a government connection) without approval. The exact rules differ by country, so in LW Global focus on the general principles.

A name can also clash with someone else's rights. The tort of passing off arises when a business trades under a name that misleads the public into thinking its goods or services are those of another business, and this harms that business's goodwill. The injured business can seek an injunction and damages. Registration of a name does not protect you from a passing off claim. Many systems also allow an objection to a name that is too like an existing trade mark or name, and the company may be ordered to change it.

The registered office is the official address where documents can be served and where statutory registers are normally kept or made available. It must be in the country of registration. The company can change it by notifying the registrar.

Share capital is the capital raised by issuing shares. A share is a unit of ownership giving the holder rights, such as to vote and to dividends. The nominal (par) value is the fixed face value of a share. Issued share capital is the nominal value of shares actually issued. Paid up is the part of the nominal value that the shareholder has paid. Unpaid is the part of the nominal value the company can still call for. Any premium is treated separately from nominal value. Shares are issued by allotment, and directors normally need authority to allot. Shares can be issued at a premium (above nominal value). Common classes are ordinary shares (usually vote, share residual profits) and preference shares (usually a fixed dividend paid first, often with limited or no voting). Rights depend on the articles and the terms of issue.

Key formulas to remember

Nominal value of issued capital: Issued share capital = number of shares issued × nominal value per share; Share premium is the excess received over nominal value and is not part of nominal capital.
Unpaid amount on shares: Unpaid = (nominal value − amount paid per share) × number of shares; Here the amount paid means the part of the nominal value that has been paid. This is the amount the company can call from shareholders. A shareholder's liability in a limited company is limited to this. Treat any unpaid premium separately.
Share premium: Premium = issue price − nominal value; Applies when shares are issued above nominal value. Shares cannot normally be issued below nominal value.
Company name rule: Name = distinctive words + required ending showing company type; The name must not be identical or too similar to a registered name, offensive, or misleading.
Passing off: Misrepresentation + goodwill + damage to the claimant; The claimant must show all three elements to succeed.

How to solve Share Capital Basics and Company Names questions

Use this method for any question on names, registered office, share issue or share classes.

1Identify what the question tests: name, registered office, allotment, or share class.
2For a name, check the ending, then whether it is the same as or too like an existing name, offensive or misleading.
3If another business complains, ask if there is a misrepresentation, goodwill and damage. If yes, passing off is possible.
4For share issue, check who has authority to allot and whether the shares are issued at or above nominal value.
5For calculations, work out the nominal value, the amount paid, and the unpaid amount for each share.
6For classes, read what rights the shares carry (vote, dividend, capital on winding up) and match them to ordinary or preference.
7State the rule, apply it to the facts, and give a clear conclusion.

Quickest way: Keyword matching for objective questions

When to use it: Use in Section A and Section B objective questions where time is short.

Read the options before the scenario so you know what is being tested.
Spot the trigger word: 'misleading name' means passing off; 'fixed dividend' means preference; 'face value' means nominal.
Cross out options that break a basic rule, such as shares issued below nominal value.
For numbers, multiply shares by value, then subtract the paid amount to find unpaid.
Choose the one option that fits every fact. Answers are all or nothing, so check each part.

Common mistakes in Share Capital Basics and Company Names

Thinking registering a company name gives protection against passing off claims.
Students assume registration means approval.
Fix: Remember that registration only deals with the register. A business with goodwill can still sue for passing off.
Leaving out the required ending such as Ltd or plc.
Students treat the ending as optional style.
Fix: State that the name must show the company type, as the rule is to warn outsiders about limited liability.
Mixing up nominal value, issue price and paid-up amount.
The terms sound alike.
Fix: Write them as three lines: nominal is face value, issue price is what is charged, paid up is the part of the nominal value that has been received. Treat any premium separately.
Treating share premium as part of nominal capital.
Both come from the same cash received.
Fix: Split the cash: nominal value goes to share capital, the excess is premium.
Assuming all preference shares have the same rights.
Textbooks give a typical description.
Fix: Say 'usually' and refer to the articles and terms of issue, which set the actual rights.

Worked examples

Example 1

A company issues 50,000 ordinary shares of ₹10 nominal value at ₹14 each. The buyers pay ₹12 per share on issue. Assume the amount paid is applied first to the nominal value and then to the premium. Calculate the nominal value of the issued capital, the share premium and the amount still unpaid on nominal value.

Show the solution

Nominal value of issued capital = 50,000 × ₹10 = ₹5,00,000.
Premium per share = ₹14 − ₹10 = ₹4, so total premium = 50,000 × ₹4 = ₹2,00,000.
Cash paid = 50,000 × ₹12 = ₹6,00,000.
Total due = 50,000 × ₹14 = ₹7,00,000, so ₹1,00,000 is still unpaid in total.
Apply the payment to nominal value first: ₹10 of the ₹12 paid per share covers the nominal value, so the paid-up amount on nominal value is ₹10 per share, or ₹5,00,000 in total.
Unpaid on nominal value = (₹10 − ₹10) × 50,000 = nil.
The remaining ₹2 per share, or ₹1,00,000, is paid towards the premium. Unpaid premium = ₹2,00,000 − ₹1,00,000 = ₹1,00,000, which agrees with the total unpaid.

Answer: Nominal capital ₹5,00,000; share premium ₹2,00,000 in total; total unpaid ₹1,00,000, of which nil is unpaid on nominal value and ₹1,00,000 is unpaid premium.

Example 2

Sunrise Bakery has traded for years under that name and built a strong local reputation. A new company registers as Sunrise Bakery Ltd and opens nearby, selling similar goods. Customers are confused. Advise whether Sunrise Bakery can act.

Show the solution

Identify the issue: a name too like an existing trading name, so passing off.
Misrepresentation: the new name leads customers to think the businesses are connected.
Goodwill: Sunrise Bakery has built a reputation over years.
Damage: lost sales and harm to reputation are likely because of confusion.
Remedy: the claimant can seek an injunction to stop use of the name and damages. Registration of the new company's name does not prevent the claim.

Answer: Sunrise Bakery can sue for passing off, because all three elements are present. It can seek an injunction and damages, and the registered name gives the new company no defence.

Exam tips

Objective questions often test a single rule, so learn the three elements of passing off by heart.
In numbers questions, write nominal, premium and unpaid as separate lines to avoid slips.
For written answers, use the pattern rule, application, conclusion, and name the parties from the scenario.
Be careful with absolute words such as 'always' or 'never' in options, as share rights depend on the articles.
Do not quote section numbers; ACCA LW Global tests principles, not one country's statute.

Practice questions from The formation and constitution of a company

Share Capital Basics and Company Names: frequently asked questions

What are the main rules on company names?

A name must show the company type, such as Ltd or plc. It must not be the same as or too like a name already on the register. It also must not be offensive or misleading.

What is passing off?

Passing off is a civil wrong where one business misleads the public into thinking its goods or services are those of another. The claimant must show misrepresentation, goodwill and damage. The remedies are an injunction and damages.

What is the difference between ordinary and preference shares?

Ordinary shares usually carry votes and share in the residual profit. Preference shares usually receive a fixed dividend first and often have limited voting rights. The exact rights depend on the articles and terms of issue.

What is a registered office for?

It is the official address of the company where legal documents can be served. It must be in the country of registration and is recorded on the public register.