Share Classes

In order to create a UK limited by shares company, at least one share should be issued. Owning shares is essentially owning a percentage of the business. If there is only one share belonging to one person in the company then that person is the full owner of that business. The most common type of share class is "ordinary shares". This is generally what a lot of new start ups will have although they do have the option to have different share classes which could result in different voting rights, entitlement to capital when closing the business down and entitlement to dividends.

Different Types of share classes

A share ‘class’ is a type of share. Each class has its own rights and conditions attached to it. These are outlined in prescribed particulars

Please note: Issuing different share classes may require your articles of association to be amended. You can modify or replace the Articles of Association for a private limited company directly with Companies House. To make the necessary modifications you will need to hold a meeting of the directors and pass a Special Resolution.

Ordinary Shares

Most companies just have ordinary shares which carry voting rights (usually one vote per share). They would not carry any special rights or restrictions. They would be able to share in the proceeds (once debts have been paid) of the company assets once the company has been dissolved. 

Some companies create different types of ordinary share classes such as "ordinary A" or "ordinary B" (alphabet shares). This is normally done to differentiate dividend payments to different shareholders (owners of the shares). It may also have different nominal values; for example, £1 shares and £100 shares. If the company keeps to the standard one vote for each share then the £1 shareholders would get 100 votes for every £100 paid whereas the £100 shareholders would on get 1 vote for paying the same amount.

Deferred Ordinary Shares

Shares on which no dividend is paid to these owners until other classes of shares have received a minimum dividend. Thereafter they will usually be fully participating. This goes for the winding up (closing) of the company too, the owners of these shares will not receive something until every other entitlement has been met. 

Non-voting Shares 

Some share classes may have certain restrictions. Non-voting shares carry no rights to vote (be a part of certain executive decisions for the company) and usually no right to attend the general meetings. These shares are generally issued to employees so some part of their salaries can be paid as dividends which can be more tax efficient for all parties involved. 

Preference Shares

Preference shares generally means having the right to a fixed amount (usually a percentage of the nominal value) of dividend each year. For example, if you had a £100, 10% preference share, you would get an annual dividend payment of £10. The payment would be made ahead of ordinary shares. It is still paid out of profits of the company; this may mean that their dividends are paid in arrears if there are insufficient reserves. Preference shares are generally non-voting (although they may get a vote if their dividends are in arrears). On the event of closing the company, they generally would not be able to get a surplus on their payments for additional capital so they would only get back what they put in. 

Redeemable Shares

The company can offer redeemable shares which may mean that after a fixed (or undisclosed) time period the shares can be bought back, this will be agreed upon before issuing. They are generally purchased back at the issue/ nominal price but does not have to be. In many cases, preference shares will be redeemable. 

If you're still in doubt about the shares you may wish to issue to your business then it is highly recommended you speak to a business adviser; they will be able to offer tailored advice for you and your business.

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