{"id":3634,"date":"2022-06-06T04:57:16","date_gmt":"2022-06-06T03:57:16","guid":{"rendered":"https:\/\/legalvision.co.uk\/?p=3634"},"modified":"2025-05-28T02:58:50","modified_gmt":"2025-05-28T01:58:50","slug":"classes-company-shares","status":"publish","type":"post","link":"https:\/\/legalvision.co.uk\/corporations\/classes-company-shares\/","title":{"rendered":"What Classes of Shares Can My Company Have?"},"content":{"rendered":"\n<p><span style=\"font-weight: 400\">When issuing equity in your company, your investors might ask for different kinds of shares. You may wonder how you can issue different shares and what the effect will be on your ownership rights. This article will explain how different classes of company shares operate<\/span>. It will also <span style=\"font-weight: 400\">provide practical tips on how to issue shares of a different class.&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Company Shares<\/span><\/h2>\n\n\n\n<p><span style=\"font-weight: 400\">Shares are of the same class if the rights attached to them are all the same. The rights which shareholders can variably have in a company include the right to:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span style=\"font-weight: 400\">attend general meetings;<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">vote in the meeting;<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">participate in the profit of the company through dividend payments; and\u00a0<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">receive a share of the company&#8217;s surplus assets after a <\/span><a href=\"https:\/\/legalvision.co.uk\/corporations\/winding-up\/\"><span style=\"font-weight: 400\">winding-up process<\/span><\/a><span style=\"font-weight: 400\">.\u00a0<\/span><\/li>\n<\/ul>\n\n\n\n<div class=\"box box--icon box--info\">\n<p><span style=\"font-weight: 400\">The most common class of shares is the \u201cordinary share\u201d, which you will have received if you founded the company. These shares entitle you to all the rights above.&nbsp;<\/span><\/p>\n<\/div>\n\n\n\n<p><span style=\"font-weight: 400\">As a general rule of company law, all shareholders of the same class of shares must be treated the same. Therefore, if you want to change the rights certain shareholders have in the company, you <\/span>must<span style=\"font-weight: 400\"> issue new shares. <\/span>I<span style=\"font-weight: 400\">f there is only one class of shares (ordinary shares), there are only \u201cshareholder rights\u201d and not \u201cclass rights\u201d.&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Ordinary Shares vs Other Classes of Shares&nbsp;<\/span><\/h2>\n\n\n\n<p><span style=\"font-weight: 400\">Suppose an <\/span><a href=\"https:\/\/legalvision.co.uk\/corporations\/lead-investors-capital-raising\/\"><span style=\"font-weight: 400\">angel investor<\/span><\/a><span style=\"font-weight: 400\"> has approached your company<\/span>. She offers <span style=\"font-weight: 400\">to double y<\/span>our company&#8217;s <span style=\"font-weight: 400\">value in exchange for half of the c<\/span>ompany <span style=\"font-weight: 400\">shares. However, one of her conditions is that she be issued \u201c<\/span><a href=\"https:\/\/legalvision.co.uk\/corporations\/types-preference-shares\/\"><span style=\"font-weight: 400\">preferred shares<\/span><\/a><span style=\"font-weight: 400\">\u201d in your company. Effectively, this investor is asking your company to create a new class of shares, g<\/span>iving <span style=\"font-weight: 400\">her \u201cpreferential rights\u201d in your company.&nbsp;<\/span><\/p>\n\n\n\n<div class=\"box box--icon box--info\">\n<p><span style=\"font-weight: 400\">The law does not define \u201cpreference shares\u201d, but when investors use the term, they usually are referring to shares that entitle the shareholders to a fixed percentage relative to the value of the share.&nbsp;<\/span><\/p>\n<\/div>\n\n\n\n<p><span style=\"font-weight: 400\">As an example, your angel investor may want \u00a30.07 per share when a dividend is declared. This right would be preferential to the rights of any shareholders. Consequently, when the company declares a dividend, it would have to pay the preferential shareholder the total amount owed before it pays the ordinary shareholders.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">In many cases, preferential shares do not give the preferential shareholder rights to vote at the shareholder meetings \u2014 these are commonly referred to as non-voting shares. However, you are free to create a share that gives the shareholder both the preferential right to dividend payments and to vote in shareholder meetings. These are commonly called \u201cparticipating preference shares\u201d.&nbsp;<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Other Common Classes of Shares<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400\">We have defined ordinary, preference shares, and participating preference shares.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">There are a few more <\/span><a href=\"https:\/\/legalvision.co.uk\/corporations\/ordinary-redeemable-preference-shares\/\"><span style=\"font-weight: 400\">common classes of shares<\/span><\/a><span style=\"font-weight: 400\"> you may encounter.<\/span><\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td><strong>Convertible shares<\/strong><\/td><td><span style=\"font-weight: 400\">These are not technically shares, but rather options to convert a loan amount into shares after the passing of some conditional event or period of time.<\/span><\/td><\/tr><tr><td><strong>Deferred shares <\/strong><\/td><td>Deferred shares <span style=\"font-weight: 400\">are similar to convertible shares in that they do not entitle the shareholder to dividend payments until after a specified time.<\/span><\/td><\/tr><tr><td><strong>Redeemable shares<\/strong><\/td><td><span style=\"font-weight: 400\">These usually function similarly to convertible shares in that they entitle the shareholder to exercise a right to acquire preferential or ordinary shares at a later date.<\/span><\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p><span style=\"font-weight: 400\">Remember, there is no legal definition for these shares. The way that the law will interpret what sorts of rights are attached to different classes of shares will be how these shares are defined in the <\/span><a href=\"https:\/\/legalvision.co.uk\/corporations\/company-constitution\/\"><span style=\"font-weight: 400\">company\u2019s constitutional documents<\/span><\/a><span style=\"font-weight: 400\">.&nbsp;<\/span><span style=\"font-weight: 400\">That is why businesses sometimes refer to the different classes of shares by generic names, like \u201cClass A\u201d vs \u201cClass B\u201d shares (also called \u201cAlphabet Shares\u201d).&nbsp;<\/span><\/p>\n\n\n    <div class=\"my-7 lg:my-10 border-y-2 border-gray-100 py-7 lg:py-10 flex flex-col sm:flex-row items-start gap-10\">\n                    <img decoding=\"async\" class=\"w-52 mx-auto my-0! rounded\" src=\"https:\/\/img.legalvision.com.au\/wp-content\/uploads\/sites\/4\/2024\/08\/19071324\/LegalVision_UK-Cap-Table-Template.jpg\" alt=\"Front page of publication\"\n                 loading=\"lazy\" width=\"208\" height=\"298\">\n                <section>\n            <div class=\"text-2xl font-bold\">Cap Table Template<\/div>\n            <div class=\"body-text\">\n                <p>Capital raising is a critical time for any startup. 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Importantly, your company will usually need to pass a series of resolutions authorising the company to make amendments to the company\u2019s constitution.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">There are several different ways you can create new classes of shares, but the following details the most straightforward method.&nbsp;<\/span><br><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400\">1. Approving the New Sets of Shares<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400\">You will almost always need to pass an <\/span><a href=\"https:\/\/legalvision.co.uk\/corporations\/ordinary-vs-special-resolution\/\"><span style=\"font-weight: 400\">ordinary resolution<\/span><\/a><span style=\"font-weight: 400\"> authorising the company to create the new class of shares. However, this is subject to your <\/span><a href=\"https:\/\/legalvision.co.uk\/corporations\/articles-of-association\/\"><span style=\"font-weight: 400\">company\u2019s articles of association<\/span><\/a><span style=\"font-weight: 400\">.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">For instance, the model articles require that the shareholders pass an ordinary resolution put to them by the directors authorising the creation of the new class of shares. However, nothing is preventing your company\u2019s articles from requiring a special resolution (75% or more of existing shareholding votes cast in favour) or disapplying the need for any resolution.&nbsp;<\/span><br><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400\">2. Authorising the Directors to Allot the Shares<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400\">Once the shareholders have authorised the creation of a new class of shares, the company must authorise the directors to issue shares of the new class to the new shareholders.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">In most cases, this will require another resolution to be put forward to the shareholders. However, the company\u2019s articles can authorise this.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">Regardless of whether this authorisation exists as a provision in the articles of association or a resolution put to the shareholders, the resolution should state the maximum nominal values of shares the directors will allot. This prevents any irregularities arising between the nominal and market values of shares issued.&nbsp;<\/span><br><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400\">3. Passing a Special Resolution to Amend the Articles&nbsp;<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400\">Best practice dictates that your company should either amend your articles or adopt new articles specifying the exact nature of the rights attached to the shares.&nbsp;This will ensure that the rights attached to the new class of shares are fully entrenched into the company\u2019s constitution<\/span>. Likewise, it ensures <span style=\"font-weight: 400\">there is no room for uncertainty as to the rights<\/span>, helping to<span style=\"font-weight: 400\"> prevent <\/span>future <span style=\"font-weight: 400\">dispute<\/span>s<span style=\"font-weight: 400\"> from arising.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">The process of creating a new class of shares can be arduous and time-consuming. Notably, it is best to seek the advice of a solicitor to ensure you remain compliant with UK company law.&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Key Practices for Business Owners<\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Corporate Governance:<\/strong> Establish clear frameworks for decision-making, conflict resolution across share classes, and board oversight, with regular reviews to ensure legal compliance and effectiveness.<\/li>\n\n\n\n<li><strong>Financial and Legal Planning:<\/strong> Assess how share classes impact capital raising, dividends, tax efficiency, and daily operations while maintaining compliance with UK company and financial laws through ongoing reviews.<\/li>\n\n\n\n<li><strong>Strategic Considerations:<\/strong> Align share structures with succession planning, investment attraction, employee incentives, growth strategies, and exit plans, reviewing regularly to match evolving business goals.<\/li>\n\n\n\n<li><strong>Professional Advisors:<\/strong> Involve legal, tax, audit, and corporate finance experts to manage complex structures, optimise tax outcomes, and maintain robust governance.<\/li>\n\n\n\n<li><strong>Effective Shareholder Communication:<\/strong> Maintain transparency with clear communication channels, regular updates on performance and rights changes, to manage expectations and reduce disputes.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Key Takeaways&nbsp;<\/span><\/h2>\n\n\n\n<p><span style=\"font-weight: 400\">If you want to vary shareholders&#8217; rights in your company, you will need to create different classes of shares. The most common variation of shareholder rights relates to the order in which the company pays shareholders dividends. For example, it is common for early-stage equity investors to receive &#8220;preference shares&#8221;. This means they will be the first to receive dividends when they are declared. <\/span>O<span style=\"font-weight: 400\">ther common variation of shareholder rights includes voting rights and rights to the return of capital <\/span>after<span style=\"font-weight: 400\"> a wind-up.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">If you need help creating a new class of shares, our experienced <\/span><a href=\"https:\/\/legalvision.co.uk\/corporate-lawyers-lp\/\"><span style=\"font-weight: 400\">corporate lawyers<\/span><\/a><span style=\"font-weight: 400\"> can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today at <a href=\"tel:+448081968584\" class=\"AVANSERnumber dynamic-number\">0808 196 8584<\/a> or visit our <\/span><a href=\"https:\/\/legalvision.co.uk\/membership\"><span style=\"font-weight: 400\">membership page<\/span><\/a><span style=\"font-weight: 400\">.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Frequently Asked Questions<\/span><\/h2>\n\n\n\n<div class=\"schema-faq wp-block-yoast-faq-block\"><div class=\"schema-faq-section\" id=\"faq-question-1654487250519\"><strong class=\"schema-faq-question\"><strong>How can there be different classes of shares in a company?<\/strong><\/strong> <p class=\"schema-faq-answer\">Different investors may want different kinds of rights in the company, such as the right to get the first dibs on dividend payments or the right to vote at a shareholder meeting. You can therefore create different classes of shares to reflect the different rights equity investors have in the company.\u00a0<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1654487261375\"><strong class=\"schema-faq-question\"><strong>What are the different kinds of share classes?<\/strong><\/strong> <p class=\"schema-faq-answer\">The law does not define different classes of shares. Therefore, when investors refer to \u201cparticipating preference shares\u201d or \u201cconvertible shares\u201d, you will have to identify what rights the shares confer.\u00a0<\/p> <\/div> <\/div>\n<div class=\"not-prose m-feedback-prompt\">\n    <!-- Thumbs up\/down bar -->\n    <div class=\"m-feedback-prompt__main\">\n        <div class=\"m-feedback-prompt__title\">Was this article helpful?<\/div>\n        <div>\n            <!--span class=\"m-feedback-prompt__button--text\">Thanks!<\/span-->\n            <button type=\"button\" class=\"m-feedback-prompt__button m-feedback-prompt__button--yes\"\n                    data-analytics-link=\"feedback-prompt:yes\" aria-label=\"Agree\">\n                <i class=\"fa-regular fa-thumbs-up fa-3x\"><\/i>\n            <\/button>\n            <button type=\"button\" class=\"m-feedback-prompt__button m-feedback-prompt__button--no\"\n                    data-analytics-link=\"feedback-prompt:no\" aria-label=\"Disagree\">\n                <i class=\"fa-regular fa-thumbs-down fa-3x\"><\/i>\n            <\/button>\n        <\/div>\n    <\/div>\n\n    <!-- Feedback form -->\n    <div class=\"m-feedback-prompt__form\">\n        <div class=\"m-feedback-prompt__form--thanks \">\n            <div>Thanks!<\/div>\n            <p>\n                We appreciate your feedback \u2013 your submission has been successfully received.            <\/p>\n        <\/div>\n        <form id=\"contact-form\" class=\"m-feedback-prompt__form--form\" action=\"\" method=\"post\">\n            <input type=\"hidden\" id=\"authenticity_token\" name=\"authenticity_token\" value=\"9eb4f72322\" \/><input type=\"hidden\" name=\"_wp_http_referer\" value=\"\/api\/wp\/v2\/posts\/3634\" \/>            <input value=\"https:\/\/legalvision.co.uk\/corporations\/classes-company-shares\/\" type=\"hidden\" name=\"currenturl\"\n                   id=\"currenturl\">\n            <input value=\"What Classes of Shares Can My Company Have?\" type=\"hidden\" name=\"currenttitle\"\n                   id=\"currenttitle\">\n            <label>\n                <!-- display on thumbs-up -->\n                <span class=\"m-feedback-prompt__feedback m-feedback-prompt__feedback--yes\">\n                    Can you tell us <span class=\"font-semibold\">why<\/span> you found it helpful?\n                <\/span>\n\n                <!-- display on thumbs-down -->\n                <span class=\"m-feedback-prompt__feedback m-feedback-prompt__feedback--no text-lg\">\n                    How can we better improve this article?\n                <\/span>\n                <textarea name=\"feedbackmessage\" id=\"feedbackmessage\" required><\/textarea>\n            <\/label>\n\n            <div class=\"m-feedback-prompt__form--error\" id=\"form-submit-error\"><\/div>\n            <button id=\"submit-contact-form-button\" type=\"submit\" name=\"commit\" class=\"m-feedback-prompt__form--submit\"\n                    data-analytics-link=\"feedback-prompt:submit\">\n                Submit            <\/button>\n        <\/form>\n    <\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>When issuing equity in your company, your investors might ask for different kinds of shares. You may wonder how you can issue different shares and what the effect will be on your ownership rights. This article will explain how different classes of company shares operate. It will also provide practical tips on how to issue<a href=\"https:\/\/legalvision.co.uk\/corporations\/classes-company-shares\/\">Continue reading <span class=\"sr-only\">&#8220;What Classes of Shares Can My Company Have?&#8221;<\/span><\/a><\/p>\n","protected":false},"author":13461,"featured_media":3168,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_relevanssi_hide_post":"","_relevanssi_hide_content":"","_relevanssi_pin_for_all":"","_relevanssi_pin_keywords":"","_relevanssi_unpin_keywords":"","_relevanssi_related_keywords":"","_relevanssi_related_include_ids":"","_relevanssi_related_exclude_ids":"","_relevanssi_related_no_append":"","_relevanssi_related_not_related":"","_relevanssi_related_posts":"2036,2770,2680,1403,1611,2339","_relevanssi_noindex_reason":"","editor_notices":[],"footnotes":""},"categories":[28],"tags":[89,99,100,223,343,433,698],"class_list":["post-3634","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-corporations","tag-corporation","tag-company-constitution","tag-articles-of-association","tag-large-business","tag-classes-of-shares","tag-ordinary-shares","tag-preferred-shares"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.1.1 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>What Are the Different Classes of Company Shares? 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