The ownership of your limited company is divided up into shares. The initial shares in your new company are known as ‘ordinary shares’, but there are other share classes that can be used.
These various share classes are used to reflect things like different voting right, different dividend payments or whether the company may want to buy back a shareholder’s shares.
The different types of shares in a limited company
- Ordinary shares – these are the standard shares you’ll create when forming the company. They don’t carry any special rights or restrictions, but you have the option to create more than one class of ordinary shares to give flexibility around dividends etc.
- Deferred ordinary shares – this class of shares won’t receive any dividend payouts until all your other share classes have received a dividend (hence the ‘deferred’ bit).
- Non-voting ordinary shares – these shares are used to limit the voting rights of the shareholder in some way, or to give them voting rights only under certain conditions.
- Redeemable shares – redeemable shares allow the company to buy back shares, generally at the same price as when issued. If you do opt for redeemable shares, you must also issue non-redeemable shares as well.
- Preference shares – the shareholder of preference shares has the right to a fixed amount dividend payout each year. This dividend payout has to be paid out before your ordinary classes of shares (hence the preferential nature of the share).
- Cumulative preference shares – if there’s insufficient capital to pay the dividend for preference shares, the payment must be made at a later date when funds allow – and before any ordinary shareholders. By default, most preference shares will be cumulative, but you do have the option to issue non-cumulative preference shares as well.
- Redeemable preference shares – you’ve probably guessed this already, but these shares combine the advantages of having redeemable shares and preference shares. So the shareholder gets a preferential dividend, and your company keeps the right to biy back those shares, if needed.
If you need help setting up the shares in your company, give us a call on 01454 300 999, or drop an email to email@example.com