Company formation FAQ - Classes of Share

Subject to the articles, but without prejudice to the rights attached to any existing share, the company may issue shares with such rights or restrictions as may be determined by ordinary resolution.

The company may issue shares which are to be redeemed, or are liable to be redeemed at the option of the company or the holder, and the directors may determine the terms, conditions and manner of redemption of any such shares.

There are many classes, or types, of share that a company can issue. Each class of share has its own characteristics. Most small privately owned companies use just one class of share: the ordinary share. Larger, and publicly traded, companies often need to issue different classes of shares in order to better manage, and control, their shares.

The most common classes of shares which are permitted in the United Kingdom are as follows: -

• Ordinary shares have no special rights or restrictions associated with them;
• Preference shares generally carry the right to preferential treatment for the shareholder to be paid any annual dividends before the holders of other classes of shares;
• Cumulative preference shares carry the right that, if dividends cannot be paid out in a given year, the value of the dividend will be carried forward to successive years;
• Redeemable shares are shares that are issued with the agreement that the company will buy them back at the option of the company or of the shareholder after a certain period of time.

It is possible to issue a combination of different shares, but it is not possible, in the United Kingdom, to issue only redeemable shares.

So long as it is otherwise lawful, shares may be issued with a myriad of rights, for example the entitlement to a dividend, or voting rights.