Starting a new business? Get 40% off our accountancy services for 3 months! 😎
Shareholders are normally entitled to voting rights and dividend payments in proportion to the value of shares they own, but if you want more flexibility then you might decide to create different share classes.
Shares are units of ownership showing who owns and controls a limited company. If you own shares, then you own part of the company’s equity (or all of the equity, if you own all of its shares).
As a shareholder you’re normally entitled to make decisions about the company (known as having voting rights) and to receive dividend payments from the company’s profits (which you’ll need to pay Dividend Tax on).
The amount of decision making power you have, or what your cut of the profits looks like, depends on how many shares you own. For instance, if there are two shareholders in the company and one owns more shares than the other, this usually means they’re entitled to more of the profits, and can make decisions without the other person’s agreement.
Usually, but not always.
Yes, you can. Sometimes known as alphabet shares because of the way they’re recorded in the accounts, companies often use these to give their shareholders different rights.
One type of share might entitle the shareholder to a percentage of the profits for each share they own but no voting rights, whilst another only permits voting rights and no dividends. It’s up to the company to decide what each class of shares entitles the shareholders to.
The owners of a company decide to create three types of shares, and call them A, B, and C. They agree that:
A very common example of using different types of shares is a company in which one shareholder is also a director and runs the business on a daily basis, whilst the other shareholder dips in as needed.
They might decide that they both need an equal say in how the company is run, but that the person taking care of the day-to-day stuff should earn more. Creating two classes of shares would allow them to keep their equal voting rights, whilst paying one shareholder their dividends at a higher rate than the other.
You might even decide to create shares for family members or staff, allowing them to receive a lower rate of dividend but without any decision-making powers, and the stipulation that they can’t transfer their shares to anyone else.
Shares are created when the decision-makers in a company agree to adopt them into the company’s Articles of Association. These are the written rules which a company uses to agree how it should be run.
The process starts with a directors’ meeting to agree the different share classifications, and how to apportion them. The next stage is to notify the shareholders, and ask for their approval. If the changes are agreed you’ll need to notify Companies House within 15 days using an SH01 Return of Allotment of Shares form.
Dividends are one of the perks of being a company shareholder. They’re a welcome financial reward in exchange for being involved in the business’ growth and development, and they can also be a tax-efficient way for directors to take money out of a business they own.
Shareholders usually receive dividend payments on the basis of how many shares they own in the company, but creating different share classes means you don’t necessarily need to pay everyone the same amount, even if they own the same number of shares.
The process for declaring dividends doesn’t actually change, even if there are alphabet shares involved. You’ll still need to ‘hold’ a director’s meeting (yep, even if you’re the only director) and produce written minutes documenting the profits to be shared out, along with a dividend voucher confirming the amount each shareholder will receive.
Learn more about our online accounting services for limited companies. Call 020 3355 4047 to chat to the team, and get an instant online quote.
Subscribe to our newsletter to get accounting tips like this right to your inbox
Give an overview of the duties, functions and responsibilities of your job. Completing annual accounts, tax returns and VAT returns for clients….
Read MoreThis month we spoke to Alex, the owner of Amplify Brand Consultancy! Amplify Brand Consultancy |Â LinkedIn Hey Alex! Tell us about your…
Read MoreIf you have your own limited company, you may be aware of director’s loans already, where company directors lend money to the…
Read MoreThe number of monthly transactions you have entered based on your turnover seem high. A transaction is one bookkeeping entry such as a sale, purchase, payment or receipt. Are you sure this is correct?
Please contact our sales team if you’re unsure
It is unlikely you will need this service, unless you are voluntarily registered for VAT.
Are you sure this is correct?
Call us on 020 3355 4047 if you’re not sure.
You will receive our bookkeeping software Pandle for free, as part of your package.
You can use this to complete your own bookkeeping, or we can provide a quote to complete your bookkeeping for you.
Please select and option below:
Call us on 020 3355 4047 if you’re not sure.