How can a company use multiple share classes?

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In many companies, it is appropriate, and certainly administratively easier for all of the shares to be of the same class.  This ensures that all shareholders can vote at shareholders’ meetings and share dividends in proportion to their respective shareholdings.

There are, however, no legal restrictions on how many share classes a company can have. Increasingly, companies are choosing to either incorporate with more than one share class or having incorporated with just one share class, either split the existing ordinary shares into multiple share classes or create an additional share class.

Although each class could be given a descriptive name, it’s common just to label multiple share classes as “A” shares and “B” shares (and maybe even “C”, “D” and “E” shares etc). Multiple share classes used in this way are often referred to, for obvious reasons, as “alphabet shares”.

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Alphabet shares allow companies to give different groups of shareholders different shareholders’ rights, including the possibility of enhanced or exclusive rights for certain shareholders. Different share classes might vary in terms of:

  • Voting rights
  • Rights to dividends
  • Rights to capital
  • Rights or restrictions on transferring shares or further shares in the class being allotted by the company
  • Special rights – e.g. conferring the ability to appoint / remove directors on a particular share class

Although there’s nothing to prevent a company having two or more share classes with exactly the same rights, usually that would be to add complexity without any real benefit.

There are no pre-determined rules on which rights “A”, “B” or other alphabet shares should have. Effectively, the possible permutations are limitless, although there are common types of shares combining certain combinations of rights which are a useful starting point. While flexibility in shareholder rights can be advantageous, it’s also valuable for the company’s share capital structure to be clear and easily understandable. As well as making company administration more straightforward, a readily comprehensible share structure might help if you’re looking to issue further shares in the future – so take care not to overcomplicate things!

Examples of situations where some companies have found alphabet shares useful include:

  • To retain special rights for the founders of a company while widening the shareholder base
  • In family companies, where the contribution and needs of family members differ
  • To pay different rates of dividends to different shareholders
  • When issuing shares to employees
  • To attract significant external investment
  • When pursuing an strategy to exit the business
  • When undertaking a joint venture with one or more partners
  • If there is a plan to buy back shares in the future
  • In certain privatised industries

How do multiple share classes operate?

In some ways, multiple share classes can operate independently of one another. So, for example, a dividend could be declared on one class of shares without being paid on another class (albeit the proper process must be followed to approve the dividend, likely to require the consent of a majority of shareholders across all share classes, before payment).

However, in other ways the rights of different classes are interdependent. The following example of alphabet shares will help to illustrate how the rights of different classes relate to one another.

Share classNominal value per shareNumber in issueRights to dividendsVoting rightsRights to capital on winding up
Ordinary “A”£1.00100Equal right to dividendsOne vote per shareOnly have right to capital once full value of “B” shares has been paid out. Full value of “A” shares must be paid before any payment on “C” shares.
Ordinary “B”£1.0070Equal right to dividendsNo voting rightsPreferential right to capital on winding up. Full value of “B” shares must be paid before any payment on other classes.
Preference “C”£10.0030No right to dividendsFive votes per shareOnly have right to capital once full value of “B” then “A” shares have been paid.

Here, there are three share classes, each with their own set of rights to dividends, vote on issues affecting the company and capital on winding up attached. But to understand the value and importance of the rights of one share class, they need to be considered in the context of all three share classes together.

Let’s look first at the voting rights.

Share classNumber in issueVoting rights
Ordinary “A”100One vote per share
Ordinary “B”70No voting rights
Preference “C”30Five votes per share

Each “A” share carries one vote. In most companies, with a single share class and 100 “A” shares in issue, this would mean a single share would provide 1 out of 100 available votes. In such a company, holding 51 shares would constitute a majority and enable the holder (or holders voting together) effectively to make any decisions that don’t require a special majority.

But, in our case, we also have to consider the Preference “C” shares. Not only are there 30 such shares, but they carry enhanced voting rights – with 5 votes per each share meaning that together the “C” shares carry 150 votes. In an extreme case, that would mean that the holders of the “C” shares acting together (with 150 votes) could consistently outvote the “A” shareholders (with 100 votes). In reality, the position will be less clear cut, but someone considering buying “A” shares and interesting in influencing the direction of the company would be prudent to investigate the position – particularly whether the “C” shares are owned or controlled by one or two shareholders.

While there are also 70 “B” shares, these carry no voting rights whatsoever. The holders of these shares will not be able to vote on matters affecting the company. On its own, this would make the shares unattractive, but they’ll often have greater rights in other areas, like an enhanced right to dividends or return of capital on winding up of the company.

Now let’s turn to rights to capital on wind up. Here, again from our example, the rights of different classes are interdependent.

Share classNominal value per shareNumber in issueRights to capital on winding up
Ordinary “A”£1.00100Only have right to capital once full value of “B” shares has been paid out. Full value of “A” shares must be paid before any payment on “C” shares.
Ordinary “B”£1.0070Preferential right to capital on winding up. Full value of “B” shares must be paid before any payment on other classes.
Preference “C”£10.0030Only have right to capital once full value of “B” then “A” shares have been paid.

If the company is wound up, there may be a limited on available funds to return to shareholders. (In fact, there may be no funds whatsoever, in which case no shareholder would receive a return of capital.) Assuming some monies are available but not enough to return capital on all shares, we have to look at the rights to capital on winding up that are attached to each share class. Typically, as in our example, there will be a prescribed order in which classes will be looked at, with a full return of the nominal value on one share class necessary before shareholders of another class will receive anything.

In our example, it is the Ordinary “B” shareholders who have first call over any funds that exist. The total nominal value of these shares is £70,000, so that amount would be required to repay them in full. (If less than £70,000 is available, they would receive a proportionate partial return of capital.)

Only if the “B” shareholders receive a return of their nominal capital can we look at other share classes, with the next in line being the holders of the “A” shares. The “C” shareholders will only receive any return of capital if both the “B” and “A” shareholders have received a return of the nominal value of their shares in full.

A particular shareholder may just have shares in one share class. But they could hold shares in multiple share classes, benefiting from a combination of the rights attached to the different shares. So, in the above example, someone might hold 10 Ordinary “A” shares and 3 Preference “C” shares. They would be entitled to dividends (if and when they are paid) from the “A” shares, but not from the “C” shares. They would be entitled to a total of 25 votes, including one vote for each of their 10 “A” shares and five votes for each of their 3 “C” shares. If the company was wound up, the shareholder’s “A” shares would rank ahead of the “C” shares for return of capital, meaning it’s possible they could receive a return in respect of one but not the other share class.

Setting up multiple share classes

A company’s articles of association will need to accommodate multiple share classes, a task for which the standard Model Articles are unsuitable. Inform Direct makes available enhanced articles of association that, alongside various other enhancements to the Model Articles, support the use of multiple share classes:

Note that the Inform Direct enhanced articles assume one vote per share and equal entitlement on winding up.  If you plan to vary these rights or have other particular requirements then it may be the case that additional work will be required to make them meet the precise circumstances of your situation. If that is the case we suggest you instruct a law firm to prepare you a bespoke set of articles.

Forming a company with more than one share class

Inform Direct fully supports online company formations with more than one share class. As part of the formation process, you’ll need to:

Adding a new share class after company formation

If you’ve formed your company with a single share class, it’s still possible to add further classes at a later date. To do so, the members will need to pass a shareholders’ resolution authorising a change to the company’s articles of association, either making specified changes to the existing articles or adopting an entirely new set. Either way, the aim is again for the articles to reflect the fact that multiple share classes exist, with respective rights attached to each share class.

We’ve written a guide to setting up a new share class which explains the process in more detail.

While multiple share classes can offer advantageous flexibility to a company, it’s vital both to understand the implications and to ensure the arrangement is acceptable in the eyes of HMRC, rather than one intended primarily to avoid tax. If you’d like to set up alphabet shares, we’d strongly recommend you first take advice from an accountant or solicitor that takes account of your personal circumstances.


Inform Direct is the innovative and easy way to manage a company's shares, make new share allotments, record share transfers, process share reorganisations and more.


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