UK Share Classes Explained | Ordinary, Preference & Alphabet Shares

When setting up or growing a limited company, choosing the right share structure is one of the most important decisions you’ll make. Different classes of shares can affect voting rights, dividend entitlement, ownership, investment opportunities and succession planning.

Understanding the main types of shares available under UK company law can help you structure your business in a way that supports your long-term objectives.

What Is a Share Class?

A share class defines the rights attached to a particular group of shares. Those rights are usually set out in the company’s Articles of Association or the terms under which the shares are issued.

Different share classes can have different rights relating to:

• Voting.
• Dividends.
• Capital distributions.
• Redemption.
• Control of the company.

 Ordinary Shares

Ordinary shares are the most common type of share issued by UK companies.

They usually provide:

• Voting rights.
• The right to receive dividends if declared.
• A share of any remaining assets if the company is wound up after creditors have been paid.

Example

A founder issues 100 ordinary shares, retaining 70 shares and issuing 30 shares to an investor. Assuming each share carries one vote, the founder retains 70% of the voting power.

 Preference Shares

Preference shares usually give shareholders priority when dividends are paid and, in some cases, when capital is returned if the company is wound up.

They often have limited or no voting rights.

Example

An investor subscribes for preference shares that carry a fixed annual dividend before dividends are paid on ordinary shares, subject to the company’s available profits and the rights attached to the shares.

  Deferred Shares

Deferred shares generally receive dividends and capital only after other classes of shares have received their entitlement.

The rights vary from company to company.

Example

A company issues deferred shares to employees under an incentive arrangement, with returns payable only after ordinary shareholders have received their entitlement.

 Redeemable Shares

Redeemable shares can be bought back by the company at a future date, provided the Companies Act 2006 requirements are met.

Example

An investor receives redeemable shares that the company intends to redeem after five years, subject to the statutory conditions being satisfied.

  Redeemable Preference Shares

These combine features of preference shares and redeemable shares.

They may provide:

• Priority dividends.
• The ability for the company to redeem the shares at a future date.

Example

A growing company raises investment using redeemable preference shares, providing investors with priority dividend rights while retaining the option to redeem the shares in the future.

 Alphabet Shares (A, B, C Shares)

Alphabet shares are different classes of ordinary shares that carry different rights.

They can allow flexibility in:

• Dividend payments.
• Voting rights.
• Capital distributions.

Example

Parents hold A Ordinary Shares with voting control, while adult children hold B Ordinary Shares with different dividend rights.

The exact rights depend on the company’s Articles of Association.

Bespoke Share Classes

A company may create additional classes of shares with tailored rights to meet specific commercial objectives.

Examples include:

• Employee share classes.
• Investor-only shares.
• Founder shares with enhanced voting rights.
• Growth shares for management incentive arrangements.

Each class should be carefully drafted to ensure the intended rights are legally effective.

Why Choosing the Right Share Structure Matters

A well-designed share structure can influence:

• Ownership and control of the business.
• Dividend flexibility.
• Investment opportunities.
• Business succession planning.
• Future fundraising.
• Exit planning.

It can also affect the tax position of both the company and its shareholders, so professional advice should always be sought before creating new share classes or changing shareholder rights.

How Business Management Consultation Can Help

At Business Management Consultation, we advise business owners on company structures that support both commercial objectives and legal compliance.

We can help you:

• Decide which share classes are appropriate.
• Create or amend share structures.
• Issue new shares correctly.
• Review Articles of Association.
• Advise on the tax implications of different share structures.
• Assist with Companies House filings and company secretarial requirements.

Whether you’re starting a new company or restructuring an existing one, we can help ensure your share structure reflects your business goals.

Conclusion

Choosing the right share classes is about much more than deciding who owns the business. The structure you put in place can influence control, dividends, investment opportunities and succession planning for many years to come.

Before issuing shares or changing your company’s capital structure, it is worth taking professional advice to ensure the arrangements are legally robust, commercially appropriate and tax efficient.

Call us today on 01273 777 333 to arrange a share structure review and discuss the most suitable options for your business.