Many business owners put little consideration into the type of shares they issue at the time of incorporation. However, there are a number of things you may want to consider when issuing company shares. One of the biggest decisions to make is if you want to issue different types of shares to create flexibility.
When forming a new company you will have to issue at least one share to one shareholder. If the company is owned by one person then issuing a single £1 share is a common practice. For companies with more than one shareholder, you may want to consider issuing different types of shares.
The most common type of share issued is an ‘ordinary’ share. They normally have equal rights to voting, dividend payments and distribution of profit on closure. You can give the share any value but it is typically £1 per share. Whilst many businesses have several shareholders all owning the same type of share you may want to issue several types of shares with different names.
Issuing Alphabet Shares
If the company has more than one owner you may want to consider issuing alphabet shares. This simply means naming a share with a letter to differentiate it from the other shares. For example, you may issue Ordinary Class A shares, Ordinary Class B shares, Preference B shares or Dividend Class C shares. There is no legal name that must be issued to shares. These names are just examples.
Each share can be given its own rights or powers. You may create shares that are voting only to allow shareholders to attend and vote at meetings. Other shares may be dividend only allowing the company directors to distribute annual profits by dividend to specific shareholders. When one shareholder has invested greater time or money into the business a class of shares may have rights regarding the distribution of funds in the event the company is ‘wound up’ or closed.
You can create shares with any rights you wish. Whilst we are not suggesting you create many share classes with rights covering a wide range of issues, creating two or three share classes can be useful. This is particularly important if you want to distribute different dividends.
Changing shares in an existing company
If your company is already formed with just ordinary shares you can easily change shares post formation. Some commentators will tell you this is complicated, but in reality, it can be as simple as completing 1 or 2 forms and recording the actions of the directors and shareholders.
If you need assistance increasing your company share capital or issuing shares with different rights do not hesitate to contact us.