Speech bubbles in front of a group of people representing shareholders in a company
Many smaller limited companies issue standard or 'ordinary' shares. This helps to keep things simple by giving all shareholders equal rights and responsibilities. This might include voting, dividends and capital assets set out in the company’s statement of capital and articles of association
However, many business owners don’t know there are different classes of shares. Before you set up or change your company structure, here’s some information about different share types. 

Preference shares 

Preferential shareholders have a right to receive a dividend before other classes of shareholder. Usually this is a percentage of the nominal value of a share. It must be fixed so directors can’t decide to change it without approval. 

Redeemable shares 

A company can retain the right to buy back redeemable shares in the future. Directors could choose to buy them back at any time or set a date to redeem them. It’s also possible to create redeemable preference shares. The company can issue shares with an attractive initial return and buy them back when business is thriving. These shares are sometimes identified as a different share class. This prevents ordinary shareholders asking for their shares to be bought too. 

Non-voting shares 

In some cases, shareholders don’t have a right to vote on company activities but still receive a fixed dividend. 

Alphabet shares 

Different classes of shares can have different names, for example after the letters of the alphabet. This makes it clear which class of share is being described without being too formal. 

Deferred ordinary shares 

Shareholders might only receive a dividend after other classes of shareholder have received their payments. 

Management shares 

Management shares usually have extra voting rights. In this way shareholders can keep control of a company. 

Why choose different share classes? 

A company can have several different classes of shares to meet the needs of its shareholders. 
For example, one company might contribute capital to another company whose owner wants to stay in control. The company owner can keep the majority of shares while the investor receives dividends from non-voting preference shares. They will benefit without being involved in running the company. 
A company owner considering retirement might sell most of their shares but keep some with specific rights of veto. They could then prevent the company being sold overseas, for example. This is sometimes called a ‘golden share’. In practice it could apply to a large number of shares and not just a single one. 
Sometimes companies issue shares to employees as part of a recruitment package or incentive scheme. These shares could have different rights to those held by the original company shareholders. For example, employees might receive dividends but can’t vote on directors’ appointments or pay. Sometimes these are deferred shares that only take effect if certain conditions are met. 
Investors might want specific preferences and other controls. These are normally covered in a detailed loan and shareholders’ agreement. 
As part of planning for inheritance tax purposes children or other family members could receive non-voting shares. However, HMRC will want to know who has ‘significant control’ over the company. 

Choosing the right share structure for your company 

Your company’s articles of association might need to be updated if you change its ownership and control structure. Under the Companies Act there is a set of model articles but they aren’t suitable for all company types. Once established, you won’t want to change your articles too frequently so planning ahead and choosing the right share structure is important. 
Please get in touch if you would like some help to review the share structure of your company. 
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