Most small companies only have one class of share, meaning they all have the same voting rights, dividend rights and return on capital if the company is wound up. These shares are often referred to as ordinary shares.
These shares normally provide the holder entitlement to vote on shareholder resolutions, receive dividends if declared and participate in any return of capital by the company to its shareholders, for example in relation to the winding up of the company.
Occasionally the structure of the business will require more than one type of share, such as ordinary, preference and non-voting shares.
Preference shares have rights in preference of ordinary shares of a company, for example normally they receive dividends in preference to any other share and have no voting rights. It is possible for a company to issue different preference shares at different times, each with different rights. These shares are attractive to potential investors as they know the specific return they will obtain and they have preferential return on capital should the company become insolvent or when share capital is being reduced.
If preference shares are to be used there are some factors to consider.
- For example are they to be preferred as to dividends or on a return of capital in winding up the business, or both.
- Whether the preference dividends are cumulative and if so whether the arrears should carry interest.
- Whether they participate in dividends beyond the preferential rate.
- Or whether they hold voting rights.
It should however be noted that for most owner managed businesses, preferential shares are not required and may add an unnecessary level of complexity and administration in relation to the company secretarial matters of the company.
If you are unsure of what shares you would like when forming your limited company, you can complete your online company formation at https://www.wisteriaformations.co.uk/uk_company_registration and issue ordinary shares. You can then issue or change rights of shares at a later time should you wish.
