The 7 different types of shares you can issue in your company

0

A company can issue ordinary or multiple types of shares during and after incorporation. Companies that issue only ordinary ones can simply adopt the Model articles of association.

To register any class other than ordinary, you will have to amend the Model articles to reflect the prescribed particulars of rights attached to each class.

If a company wishes to issue different classes after incorporation, the members must pass a resolution to amend the articles to include the different prescribed particulars.

The majority of companies issue standard ‘ordinary’ shares. This keeps things simple by offering equal rights and responsibilities to all shareholders. The rights attached to shares, which include voting rights, dividend rights and capital rights, are specified in prescribed particulars in the statement of capital and articles of association.

It is possible to issue different types of shares. This is often required when the owners wish to distinguish the value of their shares and the various rights attached to them.

Different types, or ‘classes’ include:

Preference share
These carry the preferential right of certain owners to receive a fixed percentage of profits before others . In some cases, they also offer the preferential right to capital distribution before other classes. As a result, however, they often carry no voting rights.

Non-voting shares
Typically issued to family members of the main shareholders, or to employees as part of a share scheme. This class enables existing members to maintain full control of the company whilst distributing a portion of profits to other people in a tax-efficient way.

An employee scheme is an effective way to align the interests of staff with a company’s values and objectives. The potential reward from their vested interest can motivate staff to work harder. Dividends from non-voting ordinary shares can be used as a tax-efficient way to pay part of an employee’s salary.

Redeemable shares
This class enables a company to buy back its issued shares after a fixed period of time. Often, they are created for employees and issued with the provision of being taken back if an employee leaves the company. They are often non-voting.

Alphabet shares
These are usually ordinary shares that are divided into different sub classes, such as ‘A’, ‘B’ and ‘C’. This allows a company to vary the percentage of each prescribed particular. Example:

A company has two owners. They each hold one share but contribute different amounts of capital to the business. One owner is given 50% voting rights, 50% dividend rights and 70 % capital rights. The other owner is given 50% voting rights, 50% dividend rights, and only 30% capital rights to reflect his or her smaller capital contribution upon company formation.

Management shares
These carry a smaller nominal value than other classes and/or provide multiple voting rights. They are often held by the original members as a way to retain more control of the business than newer members.

Deferred ordinary shares
Offer dividend rights to the holder only after dividends have been paid to all other members who hold different share classes.

If you have any questions you can go over to their Asked & Answered section and ask away or email them at hello@uwakili.com or call  +254 773 615 006. While you’re at it, please give them a visit on their social media pages:

0
Share.

About Author

uwakili

Uwakili enables individual and business users to create electronically legal documents, send, sign, and manage legal agreements provided by Uwakili and its partners

Comments are closed.