|DESCRIPTION OF SHARE CLASSES |
(Note: this guidance page is being re-written in view of recent law changes. Some provisions referred to may have been repealed. UKcorporator's incorporation process however remains perfectly valid and effectual.)
|Background regarding certain share types|
|Certain sets of share rights have been adopted so frequently over the years that the shares so distinguished have come to be known by special names. The precise rights attaching to different share classes in a given company will usually be set out in the articles of association (or alternatively will be notified by the company to Companies House by lodgment of an appropriate statement, resolution or agreement - sections 128(3), 129(2) and 380 of the Companies Act 1985).|
Some examples of the well known categories of shares are as follows.
|Most companies have only one class of shares - ordinary shares. Ordinary shares are by far the most common type of share. For example, the vast majority of shares listed for sale on the London Stock Exchange are ordinary shares.|
Ordinary shares have no unusual rights attached to them, for example, special preferential voting or dividend rights which a preference share might have, or a right to redeem the share which a redeemable preference share might have. Shareholders of ordinary shares have the normal and ordinary rights as set out in various sections of the Companies Act 1985 and various rights as developed by the courts over the last few hundred years.
|These shares take preferential rights over ordinary shares, usually in respect of dividends and / or repayment of capital in a winding up. The dividends may be cumulative, meaning if they are unpaid, the unpaid amount will accumulate and must be paid before any dividend can be paid on the ordinary shares.|
|Shares may be issued as redeemable (i.e. able to be bought back by the company) at the option of the company or the shareholder or on a certain date, provided that at the time of the issue, there is at least one other class of issued shares in the company which is not redeemable - section 159 of the Companies Act 1985.|
The redemption of the shares involves a repayment by the company to the shareholder of the capital subscribed for the shares, in return for which the shares are cancelled. This is one method of reducing the capital of the company without seeking the consent of the Court.
The statutory provision allowing the issue of redeemable shares (i.e. section 159(1) of the Companies Act 1985) does not extend to unlimited companies, however, as the statutory prohibition on a company acquiring its own shares only applies to companies limited by shares or by guarantee with a share capital (section 143(1) of the Companies Act 1985) there is in reality no reason why an unlimited company may not issue redeemable shares. Furthermore, the statutory restrictions (sections 160(1) and 171(1) of the Companies Act 1985) imposed on limited companies as to the manner in which redeemable shares may be redeemed, are not applicable.
|Convertible shares are shares which are expressed to convert into a different class of shares upon the happening of a certain event. They can be used to transfer rights between various shareholders.|
|These shares carry the right to a dividend if the company's profits reach a certain level (or some other financial target is reached)|
|Deferred or founder's shares|
|These shares only qualify for consideration for a dividend or rights to receive a return of capital after a certain prescribed minimum has been paid to every other class of shareholder. They are sometimes also referred to as management shares.|