The document discusses different classes of shares that companies can create, including ordinary shares, preference shares, non-voting shares, redeemable shares, deferred ordinary shares, and management shares. It provides descriptions of these common share classes and explains how companies have flexibility to set out various share class rights and attributes in their articles of association. Creating different share classes can be done for reasons such as attracting investors, making dividend payments to family or employees, and retaining control for original owners.

1. Types oClasses of shares
Most companies have only one class of shares, ordinary shares, but it is increasingly
common for even very small private companies to have different share classes. This may
be done for various reasons, such as to be able to vary the dividends paid, to create non-
voting shares, shares for family members, etc. A company can have what shares it likes
and can call any class of shares by whatever name it chooses. Apart from ordinary shares,
common types are preference shares, non-voting shares, A shares, B shares, etc
(sometimes called "alphabet shares"), shares with extra voting rights (sometimes called
"management shares"). The share class system is infinitely flexible. Different classes of
shares, and the rights attached to them, should be set out in the company'sarticles of
association. The new classes can then be allotted. Existing shares can be converted to
different classes (conversion of shares). The Company Law Solutions website provides
further practical advice on these areas.
Introduction
Ordinary shares
Non-voting shares
Redeemable shares
Preference shares
Deferred ordinary shares
Management shares
Other classes of shares
Voting shares, dividend shares, capital shares
Deadlock articles
Changing class rights
Caution
Introduction
Company Law Solutions provides an expert service advising on different classes of shares
and the procedures for creating them.
(You may want to refer to 'Shares - an introduction' before reading this page.)
Any company can create different classes of shares by setting out those classes and the
rights attached to them in the company's articles. If a company has only one class of shares
they will beordinary shares and will carry equal rights.
Different classes of shares within a company can carry identical rights, but very often have
different voting, dividend and/or capital rights. This is done for different reasons. Sometimes
it is to attract a particular investor, e.g. by giving him or her preference shares. In other
cases, shares are given to family members or employees so that dividends may be paid to
them, because it may be a more tax-efficient means of making payments to them. In such
cases, the owners of the company may want to restrict the rights attached to such shares,
e.g. by making them non-voting, and perhaps by making it possible to take the shares back
if circumstances change (perhaps by making them redeemable). In some companies,

2. identical classes of shares are issued to different people, and the articles provide that the
directors may vary the dividends between the different classes.
The following are descriptions of some typical classes of shares. There are no legal
definitions of such classes and shares with the same name (e.g. preference shares) will
have different rights in different companies.
Ordinary shares
Most companies have just ordinary shares. They carry one vote per share, are entitled to
participate equally in dividends and, if the company is wound up, share in the proceeds of
the company after all the debts have been paid.
Some companies create different classes of ordinary shares, e.g. 'A' ordinary shares, 'B'
ordinary shares, etc. This is done to create some small difference between the different
classes, e.g. to allow the directors to pay different dividends to the holders of the different
share classes, or to createdeadlock articles, or to distinguish between the shares so that
different rules apply for share transfers, etc. There can also be ordinary shares in the same
company that are of different nominal values, e.g. £1 ordinary shares and 10p ordinary
shares. If each share has one vote (regardless of its nominal value) the holder of the 10p
shares will get 10 votes for every £1 paid for them, while the holder of the £1 shares only
gets one vote per £1.
Non-voting shares
Non-voting shares carry no rights to attend general meetings or vote. Such share are widely
used to issue to employees so that some of their remuneration can be paid as dividends,
which can be more tax-efficient for the company and the employee. The same is also
sometimes done for members of the main shareholders' families. Preference shares are
often non-voting.
Redeemable shares
These are shares issued on terms that the company will, or may, buy them back at some
future date. The date and terms may be fixed (e.g. that the shares will be redeemed five
years after they are issued, perhaps at a price different from their nominal value). This can
be a way of making a clear arrangement with an outside investor.
They may also be redeemable at any time at the company's option. This often done with
non-voting shares given to employees so that, if the employee leaves the company his
shares can be taken back at their nominal value. There are statutory restrictions on the
redemption of shares. The main requirement, like a buy-back, being that the company may
only redeem the shares out of accumulated profits or the proceeds of a fresh issue of
shares (unless it makes a permissible capital. Preference shares are often redeemable
Preference shares
These will usually have a preferential right to a fixed amount of dividend, expressed as a
percentage of the nominal (par) value of the share, e.g. a £1, 7% preference share will carry
a dividend of 7p each year. It is, however, still a dividend and payable only out of profits.
The dividend may be cumulative (i.e. if not paid one year then accumulates to the next year)

3. or non-cumulative. The presumption is that it is cumulative. The dividend is usually
restricted to a fixed amount, but alternatively the preference share may be participating, in
which case it participates in profits beyond the fixed dividend under some formula.
Preference share are often non-voting (or non-voting except when their dividend is in
arrears). They are sometimes redeemable.
They may be given a priority on return of capital on a winding up. Often they will not be
entitled to share in surplus capital (i.e. they only get their £1 back on each £1 share).
Deferred ordinary shares
Shares on which no dividend is paid until other classes of shares have received a minimum
dividend. Thereafter they will usually be fully participating.
Management shares
A class of shares carrying extra voting rights so as to retain control of the company in
particular hands. This may be done by conferring multiple votes to each share (e.g. they
carry ten votes each) or by having a smaller nominal value for such shares so that there are
more shares (and so more votes) per £1 invested. Such shares are often used to allow the
original owners of a company to retain control after additional shares have been issued to
outside investors.
Other classes
Any class of shares may be created. Sometimes different classes are set up for particular
purposes, such as the following arrangements:
Voting shares, dividend shares, capital shares
Sometimes three classes of shares are created with class 'A' having all the voting rights,
class 'B' having all the dividend rights and class 'C' having all the capital rights. It is then
possible for the different shareholders to have different percentages of the rights for these
purposes. As a simple example, Shareholder 1 may have 40% of the voting rights ('A'
shares), 50% of the dividend rights ('B' shares) and 60% of the capital rights ('C' shares).
Shareholder 2 then has 60% of the votes, 50% of the dividends and 40% of the capital.
Deadlock articles
In a company with two investors, A and B (perhaps a joint venture between two unrelated
companies) the company may have two classes of shares, A shares and B shares. The
shares may carry the same rights but are intended to protect both A and B in certain ways,
e.g. the articles may provide for, say, two directors to be nominated by the holders of the A
shares and two by the holders of the B shares, etc.
Changing the class rights
There is some statutory protection given to the holders of a class of shares against the
rights on their shares being altered. A minority class of shares, or a class of non-voting
shares, would otherwise be vulnerable to the rights on those shares being altered by the
majority (e.g. by altering the articles by special resolution). This is known as a variation of
class rights. Full consideration of this complex area is outside the terms of this database,
but the following is a summary of the main statutory provisions:

4. CA 2006, sec630 provides that class rights may be varied only in accordance with the
articles or if either:
(a) the holders of three-quarters in nominal value of the issued shares of that class consent
in writing to the variation; or
(b)a special resolution (75% majority) is passed at a separate general meeting of the
holders of that class to sanction the variation.
CA 2006, sec633: The holders of not less than 15% of the issued shares of the class (being
persons who did not consent to or vote in favour of the resolution for the variation), may
apply to the court to have the variation cancelled.
More practical advice on converting shares from one class to another can be found on
the Company Law Solutions website.
Caution
Care needs to be taken when creating different classes of shares and, indeed, in issuing
shares generally. There have been many examples over recent years where shares have
been created in order to save tax without taking proper advice as to the implications of
issuing such shares to employees, family members, etc. That is not to say that such
schemes should be avoided, only that they should be put in place only with proper
advice. Company Law Solutions provides an expert service advising on different classes of
shares and the procedures for creating them. They do not give tax advice.
Shares - an introduction
Authorised capital
How many shares should a company have?
Dividends
What voting rights do shares have?
Issuing shares
Pre-emptive rights