{"id":13273,"date":"2025-02-09T13:58:16","date_gmt":"2025-02-09T13:58:16","guid":{"rendered":"https:\/\/www.qualitycompanyformations.co.uk\/blog\/?p=13273"},"modified":"2025-03-09T23:12:04","modified_gmt":"2025-03-09T23:12:04","slug":"alphabet-shares-explained","status":"publish","type":"post","link":"https:\/\/www.qualitycompanyformations.co.uk\/blog\/alphabet-shares-explained\/","title":{"rendered":"Alphabet shares explained\u00a0"},"content":{"rendered":"<p><span class=\"TextRun SCXW138055965 BCX4\" lang=\"EN-US\" xml:lang=\"EN-US\" data-contrast=\"none\"><span class=\"NormalTextRun SCXW138055965 BCX4\" data-ccp-parastyle=\"Default\">When a company has multiple shareholders, <\/span><span class=\"NormalTextRun SCXW138055965 BCX4\" data-ccp-parastyle=\"Default\">there<\/span><span class=\"NormalTextRun SCXW138055965 BCX4\" data-ccp-parastyle=\"Default\">\u2019<\/span><span class=\"NormalTextRun SCXW138055965 BCX4\" data-ccp-parastyle=\"Default\">s<\/span><span class=\"NormalTextRun SCXW138055965 BCX4\" data-ccp-parastyle=\"Default\"> often a need for a tailored ownership structure that allows <\/span><\/span><span class=\"TextRun Highlight SCXW138055965 BCX4\" lang=\"EN-US\" xml:lang=\"EN-US\" data-contrast=\"none\"><span class=\"NormalTextRun SCXW138055965 BCX4\" data-ccp-parastyle=\"Default\">for different rights and privileges between shareholders<\/span><\/span><span class=\"TextRun SCXW138055965 BCX4\" lang=\"EN-US\" xml:lang=\"EN-US\" data-contrast=\"none\"><span class=\"NormalTextRun SCXW138055965 BCX4\" data-ccp-parastyle=\"Default\">. Alphabet shares can offer a solution. <\/span><\/span><span class=\"TextRun Highlight SCXW138055965 BCX4\" lang=\"EN-US\" xml:lang=\"EN-US\" data-contrast=\"none\"><span class=\"NormalTextRun SCXW138055965 BCX4\" data-ccp-parastyle=\"Default\">This flexible <\/span><span class=\"NormalTextRun SCXW138055965 BCX4\" data-ccp-parastyle=\"Default\">yet <\/span><span class=\"NormalTextRun SCXW138055965 BCX4\" data-ccp-parastyle=\"Default\">relatively simple <\/span><span class=\"NormalTextRun SCXW138055965 BCX4\" data-ccp-parastyle=\"Default\">share <\/span><span class=\"NormalTextRun SCXW138055965 BCX4\" data-ccp-parastyle=\"Default\">class\u00a0enables a company to provide different <\/span><span class=\"NormalTextRun ContextualSpellingAndGrammarErrorV2Themed SCXW138055965 BCX4\" data-ccp-parastyle=\"Default\">dividend<\/span><span class=\"NormalTextRun SCXW138055965 BCX4\" data-ccp-parastyle=\"Default\">, voting, and capital rights to <\/span><span class=\"NormalTextRun SCXW138055965 BCX4\" data-ccp-parastyle=\"Default\">different <\/span><span class=\"NormalTextRun SCXW138055965 BCX4\" data-ccp-parastyle=\"Default\">shareholders.<\/span><\/span><span class=\"EOP SCXW138055965 BCX4\" data-ccp-props=\"{&quot;134245417&quot;:true,&quot;134245418&quot;:false,&quot;134245529&quot;:false,&quot;201341983&quot;:0,&quot;335551550&quot;:1,&quot;335551620&quot;:1,&quot;335557856&quot;:4278190080,&quot;335559685&quot;:0,&quot;335559731&quot;:0,&quot;335559737&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:240,&quot;335559740&quot;:240}\">\u00a0<\/span><\/p>\n<p>This post explains the basics of alphabet shares, the most common reasons for issuing them, and the procedures you must follow to create alphabet shares during or after the company formation process.<\/p>\n            <div class=\"key-takeaways-shortcode\" role=\"alert\">\n                <h3>\n                    <span>Key Takeaways<\/span>\n                <\/h3>\n                <div class=\"key-takeaways-shortcode__content\">\n                    <\/p>\n<ul>\n<li>Alphabet shares are ordinary shares structured into different classes, such as &#8216;A&#8217; shares, &#8216;B&#8217; shares, and &#8216;C&#8217; shares.<\/li>\n<li>Companies issue alphabet shares to vary the rights and privileges of different shareholders.<\/li>\n<li>When issuing alphabet shares to family members, companies must be mindful of HMRC&#8217;s anti-avoidance settlements legislation.<\/li>\n<\/ul>\n<p>                <\/div>\n            <\/div>\n        \n<h2>What are alphabet shares?<\/h3>\n<p data-ccp-border-bottom=\"0px none #000000\" data-ccp-padding-bottom=\"0px\" data-ccp-border-between=\"0px none #000000\" data-ccp-padding-between=\"0px\"><span data-contrast=\"none\">Alphabet shares are a type of ordinary share that limited companies can issue to shareholders (<\/span><span data-contrast=\"none\">also called the &#8216;members&#8217;<\/span><span data-contrast=\"none\">). They are structured as different classes of ordinary shares and are usually named \u2018A\u2019 ordinary, \u2018B\u2019 ordinary, \u2018C\u2019 ordinary shares<\/span><span data-contrast=\"none\">, and so on (this is where the term &#8216;alphabet shares&#8217; comes from)<\/span><span data-contrast=\"none\">.<\/span><span data-ccp-props=\"{&quot;134245417&quot;:true,&quot;134245418&quot;:false,&quot;134245529&quot;:false,&quot;201341983&quot;:0,&quot;335551550&quot;:1,&quot;335551620&quot;:1,&quot;335557856&quot;:4278190080,&quot;335559685&quot;:0,&quot;335559731&quot;:0,&quot;335559737&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:240,&quot;335559740&quot;:240}\">\u00a0<\/span><\/p>\n<p data-ccp-border-between=\"0px none #000000\" data-ccp-padding-between=\"0px\"><span data-contrast=\"none\">Ordinary shares typically provide basic shareholder rights, namely:<\/span><span data-ccp-props=\"{&quot;134245417&quot;:true,&quot;134245418&quot;:false,&quot;134245529&quot;:false,&quot;201341983&quot;:0,&quot;335551550&quot;:1,&quot;335551620&quot;:1,&quot;335557856&quot;:4278190080,&quot;335559685&quot;:0,&quot;335559731&quot;:0,&quot;335559737&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:240,&quot;335559740&quot;:240}\">\u00a0<\/span><\/p>\n<ul>\n<li>Full rights to attend and vote at a general meeting of the company\u2019s shareholders (one vote per share)<\/li>\n<li>Right to receive equal dividends per share (dividends are distributions of company profits)<\/li>\n<li>Right to share in any distributions of surplus capital, including on the winding up of the company<\/li>\n<\/ul>\n<p data-ccp-border-bottom=\"0px none #000000\" data-ccp-padding-bottom=\"0px\" data-ccp-border-between=\"0px none #000000\" data-ccp-padding-between=\"0px\"><span data-contrast=\"none\">Most companies only issue ordinary shares, so these basic rights are normally pro-rata based on the number of shares each member holds. For example, a shareholder with 25% of a company\u2019s ordinary shares would have the right to 25% of dividends, voting rights, <\/span><span data-contrast=\"none\">and capital on the winding up of the company<\/span><span data-contrast=\"none\">.<\/span><span data-ccp-props=\"{&quot;134245417&quot;:true,&quot;134245418&quot;:false,&quot;134245529&quot;:false,&quot;201341983&quot;:0,&quot;335551550&quot;:1,&quot;335551620&quot;:1,&quot;335557856&quot;:4278190080,&quot;335559685&quot;:0,&quot;335559731&quot;:0,&quot;335559737&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:240,&quot;335559740&quot;:240}\">\u00a0<\/span><\/p>\n<p data-ccp-border-between=\"0px none #000000\" data-ccp-padding-between=\"0px\"><span data-contrast=\"none\">With alphabet shares, companies can assign <\/span><span data-contrast=\"none\">different levels of these<\/span><span data-contrast=\"none\"> rights to each class, resulting in some rights applying to one class of alphabet shares but not another. For example:<\/span><span data-ccp-props=\"{&quot;134245417&quot;:true,&quot;134245418&quot;:false,&quot;134245529&quot;:false,&quot;201341983&quot;:0,&quot;335551550&quot;:1,&quot;335551620&quot;:1,&quot;335557856&quot;:4278190080,&quot;335559685&quot;:0,&quot;335559731&quot;:0,&quot;335559737&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:240,&quot;335559740&quot;:240}\">\u00a0<\/span><\/p>\n<ul>\n<li>A ordinary shares \u2013 full voting rights, full dividend rights, full capital rights<span class=\"Apple-converted-space\">\u00a0<\/span><\/li>\n<li>B ordinary shares \u2013 no voting rights, full dividend rights, no capital rights<span class=\"Apple-converted-space\">\u00a0<\/span><\/li>\n<li>C ordinary shares \u2013 full voting rights, no dividend rights, full capital rights<\/li>\n<\/ul>\n<p><span class=\"TextRun Highlight SCXW188950141 BCX4\" lang=\"EN-US\" xml:lang=\"EN-US\" data-contrast=\"none\"><span class=\"NormalTextRun SCXW188950141 BCX4\" data-ccp-parastyle=\"Default\">Alphabet shares can also provide varying rights, <\/span><span class=\"NormalTextRun SCXW188950141 BCX4\" data-ccp-parastyle=\"Default\">such a<\/span><span class=\"NormalTextRun SCXW188950141 BCX4\" data-ccp-parastyle=\"Default\">s variable <\/span><span class=\"NormalTextRun SCXW188950141 BCX4\" data-ccp-parastyle=\"Default\">dividend rates<\/span><span class=\"NormalTextRun SCXW188950141 BCX4\" data-ccp-parastyle=\"Default\">, <\/span><span class=\"NormalTextRun SCXW188950141 BCX4\" data-ccp-parastyle=\"Default\">enhanced voting rights<\/span><span class=\"NormalTextRun SCXW188950141 BCX4\" data-ccp-parastyle=\"Default\">, or<\/span><span class=\"NormalTextRun SCXW188950141 BCX4\" data-ccp-parastyle=\"Default\"> different rights to <\/span><span class=\"NormalTextRun SCXW188950141 BCX4\" data-ccp-parastyle=\"Default\">capital on winding up<\/span><span class=\"NormalTextRun SCXW188950141 BCX4\" data-ccp-parastyle=\"Default\">.<\/span><\/span><span class=\"TextRun SCXW188950141 BCX4\" lang=\"EN-US\" xml:lang=\"EN-US\" data-contrast=\"none\"><span class=\"NormalTextRun SCXW188950141 BCX4\" data-ccp-parastyle=\"Default\">\u00a0\u00a0<\/span><\/span><\/p>\n<h2>Why would a company issue them?<\/h3>\n<p>There are various reasons why companies issue alphabet shares. Often, they relate to the degree of each shareholder\u2019s involvement in the business, the risk they take, or the extent to which founding or controlling members wish to provide voting privileges to other shareholders.<\/p>\n            <div class=\"revolut_shortcode\">\n                <a href=\"https:\/\/revolutbusiness.ngih.net\/daV2kQ\" data-wpel-link=\"external\" target=\"_blank\" rel=\"noopener noreferrer\">\n                    <img decoding=\"async\" src=\"https:\/\/cdn-brand.s3.eu-west-1.amazonaws.com\/assets\/images\/revolut_mobile.png\"\n                        alt=\"Revolut Business & Affiliates.\"\n                        class=\"revolut_shortcode-mobile\">\n                    <img decoding=\"async\" src=\"https:\/\/cdn-brand.s3.eu-west-1.amazonaws.com\/assets\/images\/revolut_desktop.png\"\n                        alt=\"Revolut Business & Affiliates.\"\n                        class=\"revolut_shortcode-desktop\">\n                <\/a>\n            <\/div>\n            \n<p><span class=\"TextRun SCXW25693289 BCX4\" lang=\"EN-US\" xml:lang=\"EN-US\" data-contrast=\"none\"><span class=\"NormalTextRun SCXW25693289 BCX4\" data-ccp-parastyle=\"Default\">Tax efficiency is often the main motivator. For example, with alphabet shares, a shareholder could own 10% of issued shares that provide entitlement to 50% of any dividends. <\/span><\/span><span class=\"TextRun Highlight SCXW25693289 BCX4\" lang=\"EN-US\" xml:lang=\"EN-US\" data-contrast=\"none\"><span class=\"NormalTextRun SCXW25693289 BCX4\" data-ccp-parastyle=\"Default\">If<\/span><span class=\"NormalTextRun SCXW25693289 BCX4\" data-ccp-parastyle=\"Default\"> there was only a single class of ordinary shares<\/span><span class=\"NormalTextRun SCXW25693289 BCX4\" data-ccp-parastyle=\"Default\">, the shareholder would only be entitled to 10% of any declared dividends<\/span><span class=\"NormalTextRun SCXW25693289 BCX4\" data-ccp-parastyle=\"Default\">.<\/span><\/span><span class=\"EOP SCXW25693289 BCX4\" data-ccp-props=\"{&quot;134245417&quot;:true,&quot;134245418&quot;:false,&quot;134245529&quot;:false,&quot;201341983&quot;:0,&quot;335551550&quot;:1,&quot;335551620&quot;:1,&quot;335557856&quot;:4278190080,&quot;335559685&quot;:0,&quot;335559731&quot;:0,&quot;335559737&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:240,&quot;335559740&quot;:240}\">\u00a0<\/span><\/p>\n<p>This strategy can be beneficial where some shareholders are basic-rate taxpayers while others are subject to higher or additional tax rates. However, you&#8217;ll need to be mindful of HMRC&#8217;s &#8216;settlements&#8217; legislation in this situation (we will discuss this later in the post).<\/p>\n<p>Other common reasons for creating alphabet shares include:<\/p>\n<h4>1. Varying shareholder rights in a family-owned company<\/h4>\n<p>It\u2019s common in <a href=\"https:\/\/www.qualitycompanyformations.co.uk\/blog\/starting-family-business-8-tips-for-success\/\" data-wpel-link=\"internal\">family companies<\/a> to distribute shares to various family members, particularly spouses and children. The purpose may be to reflect their different levels of involvement, utilise everyone\u2019s tax-free allowances, create passive income for loved ones, or build generational wealth.<\/p>\n<h4>2. Awarding shares to employees<\/h4>\n<p><span class=\"TextRun SCXW16646504 BCX4\" lang=\"EN-US\" xml:lang=\"EN-US\" data-contrast=\"none\"><span class=\"NormalTextRun SCXW16646504 BCX4\" data-ccp-parastyle=\"Default\">Issuing shares to employees can be <\/span><span class=\"NormalTextRun SCXW16646504 BCX4\" data-ccp-parastyle=\"Default\">a great way<\/span><span class=\"NormalTextRun SCXW16646504 BCX4\" data-ccp-parastyle=\"Default\"> to <\/span><span class=\"NormalTextRun SpellingErrorV2Themed SCXW16646504 BCX4\" data-ccp-parastyle=\"Default\">incentivise<\/span><span class=\"NormalTextRun SCXW16646504 BCX4\" data-ccp-parastyle=\"Default\"> workers and foster loyalty. When using alphabet shares as part of an <\/span><\/span><a class=\"Hyperlink SCXW16646504 BCX4\" href=\"https:\/\/www.qualitycompanyformations.co.uk\/blog\/share-options-and-share-option-schemes\/\" target=\"_blank\" rel=\"noreferrer noopener\" data-wpel-link=\"internal\"><span class=\"FieldRange SCXW16646504 BCX4\"><span class=\"TextRun SCXW16646504 BCX4\" lang=\"EN-US\" xml:lang=\"EN-US\" data-contrast=\"none\"><span class=\"NormalTextRun SCXW16646504 BCX4\" data-ccp-charstyle=\"Hyperlink.1\">employee share scheme<\/span><\/span><\/span><\/a><span class=\"TextRun SCXW16646504 BCX4\" lang=\"EN-US\" xml:lang=\"EN-US\" data-contrast=\"none\"><span class=\"NormalTextRun SCXW16646504 BCX4\" data-ccp-parastyle=\"Default\">, companies <\/span><\/span><span class=\"TextRun Highlight SCXW16646504 BCX4\" lang=\"EN-US\" xml:lang=\"EN-US\" data-contrast=\"none\"><span class=\"NormalTextRun SCXW16646504 BCX4\" data-ccp-parastyle=\"Default\">will typically <\/span><span class=\"NormalTextRun ContextualSpellingAndGrammarErrorV2Themed GrammarErrorHighlight SCXW16646504 BCX4\" data-ccp-parastyle=\"Default\">structure<\/span> them <span class=\"NormalTextRun SCXW16646504 BCX4\" data-ccp-parastyle=\"Default\">as having the right to receive dividends, but no rights to vote on any decisions or receive any capital rights.<\/span><\/span><span class=\"EOP SCXW16646504 BCX4\" data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;134245417&quot;:true,&quot;134245418&quot;:false,&quot;134245529&quot;:false,&quot;201341983&quot;:0,&quot;335551550&quot;:1,&quot;335551620&quot;:1,&quot;335557856&quot;:4278190080,&quot;335559685&quot;:0,&quot;335559731&quot;:0,&quot;335559737&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:240,&quot;335559740&quot;:240,&quot;335572071&quot;:0,&quot;335572072&quot;:0,&quot;335572073&quot;:0,&quot;335572075&quot;:0,&quot;335572076&quot;:0,&quot;335572077&quot;:0,&quot;335572079&quot;:0,&quot;335572080&quot;:0,&quot;335572081&quot;:0,&quot;335572083&quot;:0,&quot;335572084&quot;:0,&quot;335572085&quot;:0,&quot;335572087&quot;:0,&quot;335572088&quot;:0,&quot;335572089&quot;:0,&quot;469789798&quot;:&quot;nil&quot;,&quot;469789802&quot;:&quot;nil&quot;,&quot;469789806&quot;:&quot;nil&quot;,&quot;469789810&quot;:&quot;nil&quot;,&quot;469789814&quot;:&quot;nil&quot;}\">\u00a0<\/span><\/p>\n<h4>3. Ensuring majority voting rights remain with the founders<\/h4>\n<p>Founding shareholders or key investors may wish to retain majority decision-making powers while continuing to raise capital and issue dividends to other shareholders. Alphabet shares can be structured to facilitate this.<\/p>\n<h4>4. Facilitating joint ventures<\/h4>\n<p>When two or more companies wish to set up a separate joint venture company, alphabet shares can make it easier to define each party\u2019s varied ownership rights and level of control in the new company.<span class=\"Apple-converted-space\">\u00a0<\/span><\/p>\n<h2>Mistakes to avoid<\/h3>\n<p data-ccp-border-bottom=\"0px none #000000\" data-ccp-padding-bottom=\"0px\" data-ccp-border-between=\"0px none #000000\" data-ccp-padding-between=\"0px\"><span data-contrast=\"none\">One of the most common mistakes companies make when issuing alphabet shares is failing to update the articles of association to <\/span><span data-contrast=\"none\">create<\/span><span data-contrast=\"none\"> the new share classes and specify the attached rights. The rights attached to shares are known as the &#8216;prescribed particulars&#8217;. <\/span><span data-contrast=\"none\">Unless specified otherwise,<\/span><span data-contrast=\"none\"> all company shares will <\/span><span data-contrast=\"none\">normally<\/span><span data-contrast=\"none\"> rank equally (pro rata) and provide the same voting, dividend, and capital rights per share.<\/span><span data-ccp-props=\"{&quot;134245417&quot;:true,&quot;134245418&quot;:false,&quot;134245529&quot;:false,&quot;201341983&quot;:0,&quot;335551550&quot;:1,&quot;335551620&quot;:1,&quot;335557856&quot;:4278190080,&quot;335559685&quot;:0,&quot;335559731&quot;:0,&quot;335559737&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:240,&quot;335559740&quot;:240}\">\u00a0<\/span><\/p>\n<p data-ccp-border-bottom=\"0px none #000000\" data-ccp-padding-bottom=\"0px\" data-ccp-border-between=\"0px none #000000\" data-ccp-padding-between=\"0px\">            <div class=\"hubspot_shortcode\">\n                <a href=\"https:\/\/hubspot.sjv.io\/OrKdGZ\" data-wpel-link=\"external\" target=\"_blank\" rel=\"noopener noreferrer\">\n                    <img decoding=\"async\" src=\"https:\/\/cdn-brand.s3.eu-west-1.amazonaws.com\/assets\/images\/hubspot_mobile.png\"\n                        alt=\"Get Started With HubSpot's Free Tools.\"\n                        class=\"hubspot_shortcode-mobile\">\n                    <img decoding=\"async\" src=\"https:\/\/cdn-brand.s3.eu-west-1.amazonaws.com\/assets\/images\/hubspot_desktop.png\"\n                        alt=\"Get Started With HubSpot's Free Tools.\"\n                        class=\"hubspot_shortcode-desktop\">\n                <\/a>\n            <\/div>\n<p data-ccp-border-bottom=\"0px none #000000\" data-ccp-padding-bottom=\"0px\" data-ccp-border-between=\"0px none #000000\" data-ccp-padding-between=\"0px\"><span data-contrast=\"none\">This oversight can <\/span><span data-contrast=\"none\">potentially<\/span><span data-contrast=\"none\"> result in the payment of illegal dividends, which can have serious consequences for the company and its directors. It could also lead to shareholder disputes, difficulties when seeking new investors, and potential issues during any future sale of the company.\u00a0<\/span><span data-ccp-props=\"{&quot;134245417&quot;:true,&quot;134245418&quot;:false,&quot;134245529&quot;:false,&quot;201341983&quot;:0,&quot;335551550&quot;:1,&quot;335551620&quot;:1,&quot;335557856&quot;:4278190080,&quot;335559685&quot;:0,&quot;335559731&quot;:0,&quot;335559737&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:240,&quot;335559740&quot;:240}\">\u00a0<\/span><\/p>\n<h4>Beware of HMRC&#8217;s &#8216;settlements&#8217; legislation<span class=\"Apple-converted-space\">\u00a0<\/span><\/h4>\n<p>Under <a href=\"https:\/\/www.gov.uk\/hmrc-internal-manuals\/trusts-settlements-and-estates-manual\/tsem4015\" data-wpel-link=\"external\" target=\"_blank\" rel=\"noopener noreferrer\">anti-avoidance settlements legislation<\/a>, HMRC may challenge certain dividend arrangements on the basis that an individual shareholder gains a tax advantage by diverting some of their dividend income to another person who is liable to a lower tax rate (or not subject to tax).<span class=\"Apple-converted-space\">\u00a0<\/span><\/p>\n<p>This legislation is a key consideration when issuing alphabet shares, particularly when gifting shares and <a href=\"https:\/\/www.qualitycompanyformations.co.uk\/blog\/issue-dividends\/\" data-wpel-link=\"internal\">distributing dividends<\/a> to spouses, civil partners, and minor children in a family company.<span class=\"Apple-converted-space\">\u00a0<\/span><\/p>\n<p>If HMRC suspects that settlements legislation applies, the diverted dividend income may be deemed to belong to the settlor rather than the recipient shareholder for tax purposes.<\/p>\n<p>Companies should seek professional advice and guidance before creating and issuing alphabet shares to avoid such issues.<\/p>\n<h2>How to issue alphabet shares<\/h3>\n<p><a href=\"https:\/\/www.qualitycompanyformations.co.uk\/blog\/issue-multiple-share-classes\/\" data-wpel-link=\"internal\">Issuing multiple share classes<\/a>, including alphabet shares, is always more straightforward during the company formation. However, it\u2019s also possible to create new share classes after incorporation to reflect the evolving needs of a company and its shareholders. We outline both options below:<\/p>\n<h4>Option 1: Creating alphabet shares on incorporation<\/h4>\n<p data-ccp-border-bottom=\"0px none #000000\" data-ccp-padding-bottom=\"0px\" data-ccp-border-between=\"0px none #000000\" data-ccp-padding-between=\"0px\"><span data-contrast=\"none\">Generally, you should not use the<\/span><span data-contrast=\"none\"> model articles of association to set up a company with multiple share classes. Therefore, to issue alphabet shares during the <\/span><a href=\"https:\/\/www.qualitycompanyformations.co.uk\/set-up-a-limited-company-in-4-easy-steps\/\" data-wpel-link=\"internal\"><span data-contrast=\"none\">company formation process<\/span><\/a><span data-contrast=\"none\">, you must add specialist provisions to the model articles of association or create entirely bespoke articles.\u00a0<\/span><span data-ccp-props=\"{&quot;134245417&quot;:true,&quot;134245418&quot;:false,&quot;134245529&quot;:false,&quot;201341983&quot;:0,&quot;335551550&quot;:1,&quot;335551620&quot;:1,&quot;335557856&quot;:4278190080,&quot;335559685&quot;:0,&quot;335559731&quot;:0,&quot;335559737&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:240,&quot;335559740&quot;:240}\">\u00a0<\/span><\/p>\n<p data-ccp-border-bottom=\"0px none #000000\" data-ccp-padding-bottom=\"0px\" data-ccp-border-between=\"0px none #000000\" data-ccp-padding-between=\"0px\"><span data-contrast=\"none\">These provisions outline each <\/span><span data-contrast=\"none\">share class and the rights<\/span><span data-contrast=\"none\"> attached to them. You\u2019ll then summarise the prescribed particulars of each share class on the incorporation application (form IN01).<\/span><span data-ccp-props=\"{&quot;134245417&quot;:true,&quot;134245418&quot;:false,&quot;134245529&quot;:false,&quot;201341983&quot;:0,&quot;335551550&quot;:1,&quot;335551620&quot;:1,&quot;335557856&quot;:4278190080,&quot;335559685&quot;:0,&quot;335559731&quot;:0,&quot;335559737&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:240,&quot;335559740&quot;:240}\">\u00a0<\/span><\/p>\n\t\t<div class=\"worldfirst_shortcode\">\n\t\t\t<a href=\"https:\/\/portal.worldfirst.com\/register?region=UK&amp;affiliate_id=10378\" data-wpel-link=\"external\" target=\"_blank\" rel=\"noopener noreferrer\">\n\t\t\t\t<img decoding=\"async\" src=\"https:\/\/cdn-brand.s3.eu-west-1.amazonaws.com\/assets\/images\/WFT_BANNER_326x341.png\"\n\t\t\t\t\talt=\"Worldfirst - Pay and get paid in multiple currencies\"\n\t\t\t\t\tclass=\"worldfirst_shortcode-mobile\">\n\t\t\t\t<img decoding=\"async\" src=\"https:\/\/cdn-brand.s3.eu-west-1.amazonaws.com\/assets\/images\/WFT_BANNER_980x150.jpg\"\n                    alt=\"Worldfirst - Pay and get paid in multiple currencies.\"\n\t\t\t\t\tclass=\"worldfirst_shortcode-desktop\">\n\t\t\t<\/a>\n        <\/div>\n        \n<p>As part of the incorporation process, you&#8217;ll also need to provide details of the individuals or entities holding the initial shares of each share class. These individuals are the subscribers \u2013 the founding shareholders of the company.<span class=\"Apple-converted-space\">\u00a0<\/span><\/p>\n<p><span class=\"TextRun SCXW189258936 BCX4\" lang=\"EN-US\" xml:lang=\"EN-US\" data-contrast=\"none\"><span class=\"NormalTextRun SCXW189258936 BCX4\" data-ccp-parastyle=\"Default\">At Quality Company Formations, we provide a specialist <\/span><\/span><a class=\"Hyperlink SCXW189258936 BCX4\" href=\"https:\/\/www.qualitycompanyformations.co.uk\/formation-packages\/multiple-share-class\/\" target=\"_blank\" rel=\"noreferrer noopener\" data-wpel-link=\"internal\"><span class=\"FieldRange SCXW189258936 BCX4\"><span class=\"TextRun Underlined SCXW189258936 BCX4\" lang=\"EN-US\" xml:lang=\"EN-US\" data-contrast=\"none\"><span class=\"NormalTextRun SCXW189258936 BCX4\" data-ccp-charstyle=\"Hyperlink.0\">Multiple Share Class Package<\/span><\/span><\/span><\/a> <span class=\"TextRun Highlight SCXW189258936 BCX4\" lang=\"EN-US\" xml:lang=\"EN-US\" data-contrast=\"none\"><span class=\"NormalTextRun SCXW189258936 BCX4\" data-ccp-parastyle=\"Default\">for customers wishing to set up a company with more than one class of shares<\/span><span class=\"NormalTextRun SCXW189258936 BCX4\" data-ccp-parastyle=\"Default\">.<\/span><\/span><span class=\"TextRun SCXW189258936 BCX4\" lang=\"EN-US\" xml:lang=\"EN-US\" data-contrast=\"none\"><span class=\"NormalTextRun SCXW189258936 BCX4\" data-ccp-parastyle=\"Default\"> Our Company Secretarial Team can provide a Drafting Service if you need help creating bespoke articles.<\/span><\/span><span class=\"EOP SCXW189258936 BCX4\" data-ccp-props=\"{&quot;134245417&quot;:true,&quot;134245418&quot;:false,&quot;134245529&quot;:false,&quot;201341983&quot;:0,&quot;335551550&quot;:1,&quot;335551620&quot;:1,&quot;335557856&quot;:4278190080,&quot;335559685&quot;:0,&quot;335559731&quot;:0,&quot;335559737&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:240,&quot;335559740&quot;:240}\">\u00a0<\/span><\/p>\n<h4>Option 2: Creating alphabet shares after incorporation<\/h4>\n<p><span class=\"TextRun SCXW202117439 BCX4\" lang=\"EN-US\" xml:lang=\"EN-US\" data-contrast=\"none\"><span class=\"NormalTextRun SCXW202117439 BCX4\" data-ccp-parastyle=\"Default\">To create alphabet shares for an existing company, the shareholders must pass a special resolution to amend the company<\/span><span class=\"NormalTextRun SCXW202117439 BCX4\" data-ccp-parastyle=\"Default\">\u2019<\/span><span class=\"NormalTextRun SCXW202117439 BCX4\" data-ccp-parastyle=\"Default\">s articles. The amended articles should specify the alphabet <\/span><span class=\"NormalTextRun ContextualSpellingAndGrammarErrorV2Themed SCXW202117439 BCX4\" data-ccp-parastyle=\"Default\">shares<\/span><span class=\"NormalTextRun SCXW202117439 BCX4\" data-ccp-parastyle=\"Default\"> a<\/span><\/span><span class=\"TextRun Highlight SCXW202117439 BCX4\" lang=\"EN-US\" xml:lang=\"EN-US\" data-contrast=\"none\"><span class=\"NormalTextRun SCXW202117439 BCX4\" data-ccp-parastyle=\"Default\">nd t<\/span><span class=\"NormalTextRun SCXW202117439 BCX4\" data-ccp-parastyle=\"Default\">he rights attached<\/span><span class=\"NormalTextRun SCXW202117439 BCX4\" data-ccp-parastyle=\"Default\"> to<\/span><\/span><span class=\"TextRun SCXW202117439 BCX4\" lang=\"EN-US\" xml:lang=\"EN-US\" data-contrast=\"none\"><span class=\"NormalTextRun SCXW202117439 BCX4\" data-ccp-parastyle=\"Default\"> them.<\/span><\/span><span class=\"EOP SCXW202117439 BCX4\" data-ccp-props=\"{&quot;134245417&quot;:true,&quot;134245418&quot;:false,&quot;134245529&quot;:false,&quot;201341983&quot;:0,&quot;335551550&quot;:1,&quot;335551620&quot;:1,&quot;335557856&quot;:4278190080,&quot;335559685&quot;:0,&quot;335559731&quot;:0,&quot;335559737&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:240,&quot;335559740&quot;:240}\">\u00a0<\/span><\/p>\n<p>Next, the shareholders usually need to pass an ordinary resolution authorising the directors to issue the alphabet shares, per <a href=\"https:\/\/www.legislation.gov.uk\/ukpga\/2006\/46\/section\/551\" data-wpel-link=\"external\" target=\"_blank\" rel=\"noopener noreferrer\">Section 551 of the Companies Act 2006<\/a>. This authorisation specifies the number of shares the directors can issue and the permitted timeframe for doing so (maximum period of 5 years).<\/p>\n<p>                                                    <a href=\"https:\/\/www.qualitycompanyformations.co.uk\/blog\/prescribed-particulars\/\" class=\"related\" data-wpel-link=\"internal\"><span class=\"related-title\">Prescribed particulars &#8211; the rights attached to company shares<\/span><\/a>\n                                                                        <a href=\"https:\/\/www.qualitycompanyformations.co.uk\/blog\/how-to-amend-a-companys-articles-of-association\/\" class=\"related\" data-wpel-link=\"internal\"><span class=\"related-title\">How to amend a company\u2019s articles of association<\/span><\/a>\n                                                                        <a href=\"https:\/\/www.qualitycompanyformations.co.uk\/blog\/company-resolutions-different-types-explained\/\" class=\"related\" data-wpel-link=\"internal\"><span class=\"related-title\">Company resolutions &#8211; the different types explained<\/span><\/a>\n                    <\/p>\n<p data-ccp-border-between=\"0px none #000000\" data-ccp-padding-between=\"0px\"><span data-contrast=\"none\">Within 15 days of <\/span><span data-contrast=\"none\">these<\/span><span data-contrast=\"none\"> changes, the directors must send a copy of the resolutions and the new articles as amended to Companies House with the relevant <\/span><span data-contrast=\"none\">statutory form<\/span><span data-contrast=\"none\">. Thereafter, the directors can issue alphabet shares to the relevant shareholders by following the usual <\/span><a href=\"https:\/\/www.qualitycompanyformations.co.uk\/services\/issue-of-shares\/\" data-wpel-link=\"internal\"><span data-contrast=\"none\">issue of shares procedure<\/span><\/a><span data-contrast=\"none\">. This <\/span><span data-contrast=\"none\">normally<\/span><span data-contrast=\"none\"> involves:<\/span><\/p>\n<ul>\n<li><span data-contrast=\"none\">Passing a board resolution <\/span><span data-contrast=\"none\">to approve the issuance<\/span><span data-ccp-props=\"{&quot;134245417&quot;:true,&quot;134245418&quot;:false,&quot;134245529&quot;:false,&quot;201341983&quot;:0,&quot;335551550&quot;:1,&quot;335551620&quot;:1,&quot;335557856&quot;:4278190080,&quot;335559737&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:0,&quot;335559740&quot;:240}\">\u00a0<\/span><\/li>\n<li><span data-contrast=\"none\">Where applicable, passing a members&#8217; resolution to disapply any pre-emption rights or otherwise deal with other restrictions that may be in place<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;134245417&quot;:true,&quot;134245418&quot;:false,&quot;134245529&quot;:false,&quot;201341983&quot;:0,&quot;335551550&quot;:1,&quot;335551620&quot;:1,&quot;335557856&quot;:4278190080,&quot;335559737&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:0,&quot;335559740&quot;:240,&quot;335572071&quot;:0,&quot;335572072&quot;:0,&quot;335572073&quot;:0,&quot;335572075&quot;:0,&quot;335572076&quot;:0,&quot;335572077&quot;:0,&quot;335572079&quot;:0,&quot;335572080&quot;:0,&quot;335572081&quot;:0,&quot;335572083&quot;:0,&quot;335572084&quot;:0,&quot;335572085&quot;:0,&quot;335572087&quot;:0,&quot;335572088&quot;:0,&quot;335572089&quot;:0,&quot;469789798&quot;:&quot;nil&quot;,&quot;469789802&quot;:&quot;nil&quot;,&quot;469789806&quot;:&quot;nil&quot;,&quot;469789810&quot;:&quot;nil&quot;,&quot;469789814&quot;:&quot;nil&quot;}\">\u00a0<\/span><\/li>\n<li><span data-contrast=\"none\">Completing a return of allotment of shares (form SH01) for Companies House and filing it within 1 month, <\/span><span data-contrast=\"none\">along with the members&#8217; resolution (if applicable)<\/span><span data-ccp-props=\"{&quot;134245417&quot;:true,&quot;134245418&quot;:false,&quot;134245529&quot;:false,&quot;201341983&quot;:0,&quot;335551550&quot;:1,&quot;335551620&quot;:1,&quot;335557856&quot;:4278190080,&quot;335559737&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:0,&quot;335559740&quot;:240}\">\u00a0<\/span><\/li>\n<li><span data-contrast=\"none\">Providing share certificates to the relevant shareholders<\/span><span data-ccp-props=\"{&quot;134245417&quot;:true,&quot;134245418&quot;:false,&quot;134245529&quot;:false,&quot;201341983&quot;:0,&quot;335551550&quot;:1,&quot;335551620&quot;:1,&quot;335557856&quot;:4278190080,&quot;335559737&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:0,&quot;335559740&quot;:240}\">\u00a0<\/span><\/li>\n<li><span data-contrast=\"none\">Updating the company\u2019s <\/span><a href=\"https:\/\/www.qualitycompanyformations.co.uk\/blog\/register-of-members\/\" data-wpel-link=\"internal\"><span data-contrast=\"none\">register of members<\/span><\/a><span data-contrast=\"none\"> (and the register of people with significant control, if applicable)\u00a0<\/span><span data-ccp-props=\"{&quot;134245417&quot;:true,&quot;134245418&quot;:false,&quot;134245529&quot;:false,&quot;201341983&quot;:0,&quot;335551550&quot;:1,&quot;335551620&quot;:1,&quot;335557856&quot;:4278190080,&quot;335559737&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:0,&quot;335559740&quot;:240}\">\u00a0<\/span><\/li>\n<li><span data-contrast=\"none\">Updating details of shares and shareholders on the next <\/span><a href=\"https:\/\/www.qualitycompanyformations.co.uk\/services\/confirmation-statement\/\" data-wpel-link=\"internal\"><span data-contrast=\"none\">confirmation statement<\/span><\/a><span data-contrast=\"none\">\u00a0<\/span><span data-ccp-props=\"{&quot;134245417&quot;:true,&quot;134245418&quot;:false,&quot;134245529&quot;:false,&quot;201341983&quot;:0,&quot;335551550&quot;:1,&quot;335551620&quot;:1,&quot;335557856&quot;:4278190080,&quot;335559737&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:0,&quot;335559740&quot;:240}\">\u00a0<\/span><\/li>\n<\/ul>\n<p>If pre-emption rights apply, the company may first have to offer the new alphabet shares to existing shareholders. However, there are exceptions to <a href=\"https:\/\/www.legislation.gov.uk\/ukpga\/2006\/46\/part\/17\/chapter\/3\/crossheading\/existing-shareholders-right-of-preemption\" data-wpel-link=\"external\" target=\"_blank\" rel=\"noopener noreferrer\">statutory pre-emption rights<\/a>, including the allotment of shares to employees. <span class=\"Apple-converted-space\">\u00a0<\/span><\/p>\n<p>The process of issuing new shares can be complex. To ensure any new share structure complies with relevant legislation and aligns with your company\u2019s goals, you should seek advice from an accountant or legal professional.<span class=\"Apple-converted-space\">\u00a0<\/span><\/p>\n<h4>Updating the articles of association after issuing alphabet shares<\/h4>\n<p>A company must update its articles of association accordingly when issuing any share classes other than ordinary, including alphabet shares.\u00a0<span style=\"box-sizing: border-box; margin: 0px; padding: 0px;\">The shareholders must pass a\u00a0<a href=\"https:\/\/www.qualitycompanyformations.co.uk\/blog\/special-resolution\/\" target=\"_blank\" rel=\"noopener\" data-wpel-link=\"internal\">special resolution<\/a> at a general meeting or in writing to do so<\/span>. This type of resolution requires a 75% majority vote in favour of the change.<\/p>\n<p>If a shareholder\u2019s agreement is in place, it should be updated at the same time. When making any such changes, you should ensure there are no discrepancies between the articles and the agreement.<\/p>\n<p>Amending these documents is relatively straightforward, but we recommend consulting a commercial solicitor to ensure the correct procedures are followed and that any changes are appropriate, enforceable, and comply with company law.<\/p>\n<h4>Do I need a shareholders\u2019 agreement?<\/h4>\n<p>A <a href=\"https:\/\/www.qualitycompanyformations.co.uk\/blog\/what-is-a-shareholders-agreement-and-why-do-i-need-one\/\" data-wpel-link=\"internal\">shareholders&#8217; agreement<\/a> is an optional, private contract between the members of a company limited by shares. However, creating a properly drafted agreement is advisable if your company has more than one shareholder and issues multiple share classes.<\/p>\n<h2>Thanks for reading<span class=\"Apple-converted-space\">\u00a0<\/span><\/h3>\n<p>Whether you\u2019re considering giving shares to loved ones, setting up an employee share scheme, or entering a joint venture with other companies, alphabet shares are the ideal share class for varying shareholder rights.<\/p>\n<p>If you have questions or need help setting up a company with alphabet shares, please comment below or <a href=\"https:\/\/www.qualitycompanyformations.co.uk\/contact-us\/\" data-wpel-link=\"internal\">contact our company formation team<\/a>. If your situation is particularly complex, you may also wish to speak to your accountant or a commercial solicitor.<span class=\"Apple-converted-space\">\u00a0<\/span><\/p>\n<p>Explore the <a href=\"https:\/\/www.qualitycompanyformations.co.uk\/blog\/\" data-wpel-link=\"internal\">Quality Company Formations Blog<\/a> for limited company guidance and business advice.<\/p>\n            <div class=\"complete_package__shortcode\">\n                <a href=\"https:\/\/www.qualitycompanyformations.co.uk\/fully-inclusive-package\/\" data-wpel-link=\"internal\">\n                    <img decoding=\"async\"\n                        src=\"https:\/\/cdn-quality.s3.eu-central-1.amazonaws.com\/assets\/custom\/images\/blog\/qcf-blog_sidebar.png?v=4\"\n                        alt=\"Fully Inclusive Package\"\n                        class=\"complete_package__mobile\"\n                    \/>\n                    <img decoding=\"async\"\n                        src=\"https:\/\/cdn-quality.s3.eu-central-1.amazonaws.com\/assets\/custom\/images\/blog\/qcf-blog_banner.png?v=4\"\n                        alt=\"Fully Inclusive Package\"\n                        class=\"complete_package__desktop\"\n                    \/>\n                <\/a>\n            <\/div>\n        \n"},"excerpt":{"rendered":"<p>When a company has multiple shareholders, there\u2019s often a need for a tailored ownership structure that allows for different rights and privileges between shareholders. Alphabet shares can offer a solution. This flexible yet relatively simple share class\u00a0enables a company to provide different dividend, voting, and capital rights to different shareholders.\u00a0 This post explains the basics&hellip;<\/p>\n","protected":false},"author":27,"featured_media":13295,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false},"categories":[141],"tags":[],"class_list":["post-13273","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-shares-shareholders","category-141","description-off"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v24.7 (Yoast SEO v24.7) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Alphabet Shares Explained<\/title>\n<meta name=\"description\" content=\"Find out about alphabet shares, including the most common reasons for issuing them, and the procedures you must follow to create them.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.qualitycompanyformations.co.uk\/blog\/alphabet-shares-explained\/\" \/>\n<meta property=\"og:locale\" content=\"en_GB\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Alphabet shares explained\u00a0\" \/>\n<meta property=\"og:description\" content=\"Find out about alphabet shares, including the most common reasons for issuing them, and the procedures you must follow to create them.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.qualitycompanyformations.co.uk\/blog\/alphabet-shares-explained\/\" \/>\n<meta property=\"og:site_name\" content=\"Quality Formations Blog\" \/>\n<meta property=\"article:published_time\" content=\"2025-02-09T13:58:16+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2025-03-09T23:12:04+00:00\" \/>\n<meta property=\"og:image\" 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them.","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/www.qualitycompanyformations.co.uk\/blog\/alphabet-shares-explained\/","og_locale":"en_GB","og_type":"article","og_title":"Alphabet shares explained\u00a0","og_description":"Find out about alphabet shares, including the most common reasons for issuing them, and the procedures you must follow to create them.","og_url":"https:\/\/www.qualitycompanyformations.co.uk\/blog\/alphabet-shares-explained\/","og_site_name":"Quality Formations Blog","article_published_time":"2025-02-09T13:58:16+00:00","article_modified_time":"2025-03-09T23:12:04+00:00","og_image":[{"width":1500,"height":750,"url":"https:\/\/www.qualityformationsblog.co.uk\/wp-content\/uploads\/2025\/02\/Shutterstock_1916965271.jpg","type":"image\/jpeg"}],"author":"James Dobran","twitter_misc":{"Written by":"James Dobran","Estimated reading 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including the most common reasons for issuing them, and the procedures you must follow to create them.","breadcrumb":{"@id":"https:\/\/www.qualitycompanyformations.co.uk\/blog\/alphabet-shares-explained\/#breadcrumb"},"inLanguage":"en-GB","potentialAction":[{"@type":"ReadAction","target":["https:\/\/www.qualitycompanyformations.co.uk\/blog\/alphabet-shares-explained\/"]}]},{"@type":"ImageObject","inLanguage":"en-GB","@id":"https:\/\/www.qualitycompanyformations.co.uk\/blog\/alphabet-shares-explained\/#primaryimage","url":"https:\/\/www.qualityformationsblog.co.uk\/wp-content\/uploads\/2025\/02\/Shutterstock_1916965271.jpg","contentUrl":"https:\/\/www.qualityformationsblog.co.uk\/wp-content\/uploads\/2025\/02\/Shutterstock_1916965271.jpg","width":1500,"height":750,"caption":"A male hand placing 3 wooden blocks on a yellow table, with the letters A, B and C printed on them, illustrating the concept of alphabet 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