Share Classes Explained: Rights, Types and How to Create Them

What a share class actually is

The legal test is simple to state. Section 629 of the Companies Act 2006 provides that shares are of one class if the rights attached to them are in all respects uniform. If every share in your company carries the same voting power, the same dividend entitlement and the same claim on capital, you have a single class, usually called ordinary shares.

There is one narrow carve-out. Section 629 adds that shares are not treated as a different class merely because they do not carry the same rights to dividends in the twelve months immediately following their allotment. In other words, a short first-year difference in dividend timing does not, by itself, split your shares into separate classes.

Because the rights define the class, you cannot describe a class properly without setting out what those rights are. That is why company formation asks you to state, for each class, the rights that attach to it. Founders often start simple with one class and add further classes only when there is a clear commercial reason, such as bringing in an investor or paying dividends flexibly.

The three rights that define a class

Almost every share right falls into one of three buckets: income, control, and return of capital. These are the levers you adjust when you design a class, and they map directly onto the information Companies House expects you to provide.

Dividend rights govern income: whether a share receives a dividend, and on what basis. Voting rights govern control: how many votes, if any, a share carries on company decisions. Capital rights govern the return of money if the company is wound up or otherwise returns capital, including whether a share ranks ahead of others. A fourth feature, redemption, is not a right in the same sense but must also be recorded: whether the shares can be bought back by the company.

GOV.UK confirms the default position for the most common share type. It states that shareholders with ordinary shares will usually get one vote on company decisions per share, and be paid dividends. When you depart from that default, you are creating a distinct class, and you must describe the difference precisely.

The common share classes

Most private companies use a small number of well-understood classes. GOV.UK confirms that you can issue different types, or classes, of shares, and that the price of an individual share can be any value. The classes below are the ones you are most likely to encounter, though the exact rights always come down to your articles of association and the terms of issue.

Ordinary shares are the standard type and usually carry one vote each, a share of dividends and a share of capital on winding up. Preference shares typically give a fixed or priority dividend and often rank ahead of ordinary shares on a return of capital, but frequently carry limited or no voting rights. Non-voting shares carry economic rights without a vote, which suits family members or employees you want to reward without giving control. Redeemable shares can be bought back by the company or the shareholder, which is useful for temporary investment or employee share schemes. Alphabet shares are covered in their own section below.

The table sets out the typical profile of each class. Treat it as a starting point rather than a rule, because you can combine these features in many ways. What matters legally is that the rights you actually grant are written down and filed accurately.

Prescribed particulars: what you must file

When you register a company or later allot shares, you provide a statement of capital. For each class of share, this must include the prescribed particulars, meaning a description of the rights that the class gives its holders. GOV.UK explains that you must include information about what rights each class of share gives the shareholder.

The prescribed particulars break down into four items. They cover any voting rights, including rights that arise only in certain circumstances; any rights as respects dividends; any rights as respects capital to participate in a distribution, including on a winding up; and whether the shares are to be redeemed or are liable to be redeemed at the option of the company or the shareholder.

Precision matters at this stage. Companies House expects the rights to be spelled out in the statement itself rather than by cross-reference to another document, so vague or incomplete particulars can hold up an application. For a single class using model articles, acceptable wording can be as short as stating that the ordinary shares have full rights in the company with respect to voting, dividends and distributions.

Alphabet shares and dividend flexibility

Alphabet shares are classes distinguished only by a letter, such as A ordinary shares, B ordinary shares and C ordinary shares. Their main attraction is dividend flexibility: they let a company declare a dividend on one letter without paying the same rate on the others. This is why they are popular in family companies and small businesses where shareholders sit on different personal tax positions.

The flexibility does not come automatically. The model articles, like the older Table A, require dividends to be paid in proportion to the number of shares held. To pay a different rate on A shares than on B shares, the articles must contain a clause allowing the directors, or the members as appropriate, to vary dividends between one class and another and override that proportional default. Without that clause, the alphabet labels achieve nothing on dividends.

In other respects the letters usually rank equally, so voting and capital rights are typically the same across A, B and C shares unless the articles say otherwise. That said, alphabet classes are still distinct classes for filing purposes, so each letter needs its own prescribed particulars, and any difference in rights must be recorded honestly. Tax treatment of dividends is a separate matter, and you should take specific advice before relying on an alphabet structure for tax planning.

How to create a new share class

Creating a new class after incorporation is a governance exercise as much as a form-filling one. The mechanics depend on your articles, but the general path is consistent. First, check that your articles permit the new class and the rights you want; if they do not, you will usually need to amend them by special resolution. Then define the rights precisely, agree the allotment, and notify Companies House.

The registrar needs to be told about the new class. Where a company assigns a name or designation to a class of its shares, section 636 of the Companies Act 2006 requires it to deliver a notice to the registrar within one month. When you allot the shares themselves, you file a return of allotment with an updated statement of capital that includes the prescribed particulars for the new class.

Keep pre-emption in mind before you allot. Section 561 gives existing shareholders a right of first refusal, called pre-emption, over new equity securities in proportion to their holdings, unless that right has been excluded or disapplied. Founders often relax these rules in the articles, but you should confirm the position before issuing new shares to a new investor.

Varying the rights of an existing class

Once a class exists, its rights are protected. You cannot quietly change what a class is entitled to. Section 630 of the Companies Act 2006 sets out how class rights may be varied for a company with a share capital. Where the articles contain a procedure for variation, you follow that procedure. Where they do not, the rights may only be varied with consent from the class affected.

That consent has a defined threshold. The variation needs either written consent from the holders of at least three-quarters in nominal value of the issued shares of that class, excluding any treasury shares, or a special resolution passed at a separate general meeting of the holders of that class sanctioning the variation. References to variation also include abrogation, meaning the rights can be removed as well as changed, but only by meeting the same threshold.

After a valid variation, the registrar must be informed. Section 637 requires the company to deliver a notice giving particulars of the variation to the registrar within one month of the date the variation is made. Missing that deadline is an offence, so build the filing into your process rather than treating it as an afterthought.

Conclusion

Share classes are one of the most flexible tools in company formation, but the flexibility rests on precision. A class is defined by its rights to dividends, votes and capital, plus whether it can be redeemed, and those rights must be described in the prescribed particulars you file at Companies House. Get the description right and the structure works quietly in the background; get it vague and you invite rejected filings and future disputes.

If you are setting up, start simple and add complexity only when there is a real commercial reason, such as an incoming investor, an employee scheme or a genuine need for dividend flexibility through alphabet shares. When you do add or change a class, remember the guardrails: pre-emption on new allotments, the one-month notices to the registrar, and the three-quarters consent needed to vary an existing class. If you want a formation that gets the share structure right from day one, explore our company formation service or talk to our team about the classes that fit your plans.

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