The vast majority of new companies are set up with a single class of shares known as ‘ordinary’ shares. This class provides equal voting and dividend rights to all shareholders, proportional to the number of shares they hold. However, if you want to vary the rights of shareholders, you can issue multiple share classes when setting up a company (or at any time thereafter).
In this post, we explain the reasons why some companies issue different types of shares, before going on to discuss the steps required to form a company with multiple share classes online.
Setting up a company with different types of shares
The rights of company shareholders are determined by the types (classes) of shares they own, and how many. There are several share classes available, each of which carries specific rights, thus enabling companies to provide different rights to different shareholders, if required.
Most companies have only ordinary shares. This share class is entirely suitable for the majority of small companies, particularly those with only one or two shareholders who participate equally in the business.
Setting up a company with ordinary shares keeps things simple and is much easier to manage. However, some companies have more complex ownership structures, which may necessitate the use of multiple share classes.
By issuing multiple share classes, you can vary the rights of shareholders in your company. These rights include:
- voting rights – the right to vote at general meetings or by written resolution, and the number of votes each share provides (e.g. one vote, two votes, 10 votes per share, etc.)
- dividend rights – whether they are entitled to receive dividend payments, and under which circumstances
- capital distribution rights – the right to receive a share of the remaining capital upon the winding up of the company
- redeemable rights – the right or requirement to sell their shares back to the company at some point in the future
- rights or conditions attached to any future sale or transfer of their shares
- special rights granted to only one class of share – e.g. the power to appoint or remove directors, authorise changes to share capital or approve large transitions
There are many reasons why companies may choose to vary shareholders’ rights and create different types of shares, whether during or after incorporation. For example:
- to ensure that the founding shareholders retain all or most of the voting power in the company
- to distribute profit to new investors without losing any control of the business
- to vary the voting power of shareholders based on their knowledge or status within the company
- to ensure certain shareholders receive dividends before others, perhaps to reflect their level of contribution or position in the company
- to restrict the payment of dividends to particular shareholders unless certain conditions are met
- to set up an employee share scheme, whereby loyal staff members can receive dividends, but do not have the right to vote on company matters
- to issue dividends to family members without diminishing the voting power of other shareholders
- to give preferential treatment to certain shareholders upon the winding up of the company – e.g. right to dividend payments or capital distributions
It’s easy to overlook these types of considerations when you’re setting up a company for the first time – especially when going into business with close friends or family members who you trust implicitly. But this does leave the door open to potential disputes further down the line.
Therefore, unless each and every shareholder in your new company is going to participate equally in the business, you should consider issuing multiple share classes during the company formation process.
You can, of course, create different types of shares after incorporation to reflect the changing needs of your business. However, it’s much harder to change the rights of existing shareholders after the fact, so bear this in mind.
How to set up a company with multiple share classes online
At Quality Company Formations, we offer a range of packages to suit every type of company. This includes our specialist Multiple Share Class Company Package, which is ideal for setting up a company with more than one class of share and bespoke articles of association.
Using our 4-step company formation process, you can form a company with multiple shares online in under 24 hours. Simply choose a company name, select and pay for the package, and spend 5-10 minutes entering the following information on our company registration form:
- company name, remembering to include ‘Ltd’ or ‘Limited’ at the end
- jurisdiction of incorporation (England & Wales, Wales, Scotland, or Northern Ireland)
- Standard Industrial Classification (SIC code) to describe the main business activity that you plan to carry out through the company
- registered office address
- details of every director, shareholder, and person with significant control (PSC)
- details of shareholdings – share classes, quantity, currency, and price per share
- prescribed particulars of rights attached to each share class
You will also be required to upload your own articles of association – the standard ‘Model’ articles can only be used by companies incorporating with ordinary shares.
If you do not have suitable articles of association, please contact our Company Secretarial Team on 0203 984 5389 to purchase bespoke articles using our Drafting Service.
For further guidance on the information you need to enter on the application, please read our Company Formation Checklist. You can also call or chat online with our friendly UK-based team if you are unsure about anything or need additional help.
Upon completing your registration form, we will perform a free pre-submission review and then send it to Companies House for approval. In most cases, applications are approved within 24 hours.
When your company has been successfully incorporated, we will send you a full set of digital and printed company formation documents. This includes the certificate of incorporation, memorandum and articles of association, and share certificates.
You will also enjoy access to our Online Client Portal, where you can view and manage your company details, as well as free support from our team of experts for the lifetime of your company.
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If you have any questions about this post or need help setting up a company with multiple share classes, please leave a comment below or get in touch with our company formation team.
