The ownership structure of a limited company is characterised by the distribution of its share capital. Two shareholders, for example, may hold 50 shares each out of 100 issued shares illustrating their equal 50% ownership. Each share class is assigned with rights, otherwise known as prescribed particulars. The rights outline the powers the respective shareholders have within the company.

It is fairly common for new companies to have one share class with a standardised set of rights that are usually adopted when the company is also using model articles. These prescribed particulars may state that the ordinary share class has ‘Full rights with regards to voting, participation and dividends.’ However, the ownership structure of a company may not always be so clear-cut and this can often necessitate the use of more bespoke rights for differing share classes to better reflect a company’s composition.

The rights attached to a share class are outlined in the companies articles of association. New shares can be issued in different classes and with different rights by filing the SH01 form.

What do the rights mean?

Voting rights assigned to a share class determine how many votes are attached to each share. Voting rights for a given share class may also only apply in certain circumstances.

Participation rights refer to the right to participate in a distribution of capital or assets in a situation in which the company is to be wound up.

This refers to the right to dividends attached to each share class. There may be one class of shares within the company where the dividend rights are Pari Passu. This means each share is entitled to the same dividends. Multiple share classes may also be used so that X amount of dividends can be issued to ‘Class A’ shares and Y amount can be issued to ‘Class B’ shares.

Different particulars attached to different share classes are often used to clearly define differing voting powers, share structures, control of decision making and to better reflect ownership of the company.

Why different rights are used

Example 1 – Non-Voting Shares

A company may opt to provide remuneration to employees through the use of non-voting shares. This would allow the owners of a company to incentivise employees with a dividend scheme whilst maintaining full control. Issuing dividends in addition to a basic salary is more tax-effective ins certain situations.

Example 2 – Preferential dividend rights

A class of shares may be assigned preferential dividend rights. This would ensure that the given share class would take precedence when dividends are distributed ahead of any other class. This may be used as a means to attract potential investment. This would allow investors to receive a return on their initial investment when the company has made a profit before dividends are issued elsewhere.

The above is intended as a general guide only. we recommend contacting an accountant for professional advice when issuing multiple share classes with different rights attached.