Multiple share classes and alphabet shares

At BTC, we realise that "one size does not fit all", when it comes to company formation and, in particular, the structure and classification of your company's share capital.

Planning for your business and its structure usually starts before you apply for the incorporation of your company. For example, tax efficient remuneration and dividend policies, especially when concerning family owner managed companies may involve the formation of a company with multiple share classes. We also have the £5,000 tax free dividend tax threshold to consider in the tax planning process. These are known as alphabet share structures and may also be used to issue share capital to company investors.

A company may want to have a variance to the prescribed rights to the shares, some or all with different rights attached to them. Typically, ordinary shares have some or all of the following rights:

• Voting: Normally shares have voting rights, which is full rights to receive notice of, attend and vote at general meetings with one share carrying one vote. In some circumstances it may be preferable to have non-voting shares
• Dividends: all share rank parri passu (the same) when directors declare a dividend, however it may be that the planning be undertaken requires different dividends or different rates of dividends to be paid. In these circumstance an alphabet share scheme coupled with a directors authority tom declare different dividends or different rates of dividends requires amendments to the articles of association.
• As a default all shares of the same class have the same right to participate in any capital growth of the business. If the capital participation needs to be restricted this needs to be written into the articles of association as part of the prescribed rights of the share class.
• Authority to allot shares: under the 2006 Companies Act when more than one class of shares are to be allotted the directors need an authority to allot these classes for a period of 5 years for the date of incorporation. This in some ways mirrors the old authorised share capital under the 1985 Act. This authority needs inserting into the articles on any alphabet share incorporation.

There are many other scenarios which require careful planning, such as pre-emption rights and any redemption of shares.

We would be pleased to discuss your requirements with you and if necessary draft articles with the prescribed rights, and other authorities as needed to ensure your new company has the correct and valid structure for your needs. Once drafted, we can ensure your company is incorporated at Companies House quickly and securely.

To help you, we have included a choice of Articles of Association that can be used to incorporate simple A and B share classes ranking pari passu, with a variable dividend authority and authority to allot up to 1,000 of each class. This is free of charge.

Get in touch...

Please contact us and we will be more than happy to discuss your individual requirements.