Most private companies have only one class of shares - ordinary shares and they are by far the most common type of share. They have no preferential voting or dividend rights attached to them they simply have the ordinary rights as set out in various sections of the Companies Act 1985. It is possible and often necessary for a company to have two or more distinct classes of shares in existence at any one time so that individual rights can be varied depending on the class of shares held.

There are various reasons why it might, in certain circumstances, be appropriate to have different classes of shares. For example, in a small trading company, it might be desired to confine control of the business to a certain person (or persons). Such person/s can be allotted a particular class of shares which have greater voting rights than other classes. A company which needs to raise new share capital may decide to offer shares with preferential dividend rights so as to encourage investment.

Quite often a company’s share capital is simply divided into ‘A’ and ‘B’ class shares so that ‘A’ shares entitle the holders thereof to full rights in respect of:

(a) Voting rights
(b) Capital rights (rights to participate in distribution of surplus assets after repayment of capital)
(c) Dividend rights

In this straight forward example ‘B’ shares might for example only entitle the holders thereof to receive standard dividends only.

Additional rights attached to particular class of share might also include:
(a) Entitlement to a dividend in priority to holders of other share classes,
(b) Right to payment of capital on a reduction of capital,
(c) Entitlement to priority in repayment of capital in a winding up

Directors are usually given powers to vary the amount of dividends between classes, they can also declare dividends for one class of share and not the other

Unlike standard ordinary shares there is no requirement to issue shares from the different classes at the same time or in the same proportions and shareholders can hold more than one class of share in the same company and benefit from the rights which pertain to the multiple groups.

In reality it is possible to effectively ‘mix and match’ the rights attached to the classes of shares and there is no statutory limit which restricts the number of classes which a company can create provided the correct procedures are followed. These procedures include the necessary company resolutions and board minutes authorising the creation and issue of additional classes of shares.

In addition the rights attached to each of the share classes need to be fully defined within the articles of association of the company.

If you would like to create class shares or would like to find out more about the process please email info@domainscape.co.uk in the first instance. Our fees are generally fixed at £120.00 (inc) to deal with the entire process from start to finish.