Many companies issue more than one class of shares, commonly referred to as “A Shares” and “B Shares”, to reflect the different rights and objectives of their shareholders. However, these labels alone tell you very little about what rights those shares actually carry. This article will consider these commercial and legal points before explaining how to determine the exact rights attached to shares described as “A Shares” and “B Shares”.<\/p>\n\n\n\n
A class of shares<\/a> will differ from another class of shares if the rights attached to the shares vary. The rights in question relate to the right of the shareholder to:<\/p>\n\n\n\n Therefore, if one class of shares grants one shareholder the right to vote in meetings, whereas another class does not grant the shareholder any voting rights, the law considers these to be shares of a different class. <\/p>\n\n\n\n How the rights differ is a matter for the company and its shareholders to determine. There are countless ways a company can vary rights across different classes of shares. Despite that, a company may refer to shares using common names. Examples include:<\/p>\n\n\n\n It is important to note that, under the Companies Act 2006<\/em>, shares are considered to be of the same class if the rights attached to them are in all respects uniform. This means that even if shares have different names, they will still be considered the same class if the rights are identical.<\/p>\n<\/div>\n\n\n\n A company choosing to refer to the shares as A Shares and B Shares is a matter of convention. The company would also be perfectly free to name one class \u201cX Shares\u201d and another \u201cY Shares\u201d.<\/p>\n\n\n\n There are many reasons a company may wish to have more than one class of shares. In practice, companies may have shareholders with different objectives. For example, its founders may want to own the shares throughout their lives and ensure they maintain voting control. Later-stage investors may want to sell the shares they received for more than what they paid. Alternatively, a company may want to reward its employees with shares.<\/p>\n\n\n\n A Shares and B Shares are also common in family-run companies, especially where ownership has transferred to the descendants of the founders.<\/span><\/p>\n<\/div>\n\n\n\n In each case, the rights attached to one class of shares may not be appropriate for another class of shareholders. <\/p>\n\n\n\n With this in mind, A Shares and B Shares typically refer to shares that might generally be described as ordinary shares, but which, when compared to one another, have different rights. For instance, consider how the following rights differ between two hypothetical classes of shares:<\/p>\n\n\n\n The most common situations where we see two different classes of ordinary shares are:<\/p>\n\n\n\n\n
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A Shares and B Shares: Common Usage <\/h2>\n\n\n\n
Voting Rights <\/strong><\/td> Class A shares hold twice the voting power relative to Class B shares on all shareholder resolutions. <\/td><\/tr> Dividend Rights <\/strong><\/td> The directors can decide to pay different amounts of dividends on Class A and Class B shares. Any dividends declared on a share class are paid to the holders of those shares based on the number of shares they hold. <\/td><\/tr> Right to Capital Upon a Wind-Up<\/strong><\/td> Class A shares rank after Class B shares in terms of the shareholder’s right to a return of capital upon a wind-up.<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n Examples of Company Usage of Two Share Classes <\/h3>\n\n\n\n
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