UK company formation having a single class of shares is straightforward and can be completed by any company formation agent. It is also attainable to find a company with various classes of share. This can be a much more sophisticated method, which can be ordinarily supplied by corporate law firms and providers of company secretarial services.
You will discover several causes why you could choose to type a company with a lot more than 1 class of share.
You may, for example, want numerous classes to ensure that:
- you may have total handle over the quantity and timing of dividend payments to every shareholder,
- specific shareholders have no voting rights or enhanced voting rights,
- specific shareholders have no proper to a return of capital on winding up,
- certain shareholders obtain preferential treatment like the correct to a fixed dividend or a return of capital ahead of other shareholders.
Ordinary shares are normally divided into ‘A’ ordinary, ‘B’ ordinary, ‘C’ ordinary, and so on classes if these classes are to possess broadly precisely the same rights, with slight variations such as possessing the ability to declare a various dividend on every class. As an additional instance, if a class of shares receives preferential treatment for example the proper to fixed dividends or return of capital ahead of other shareholders then those shares are normally labeled as ‘preference’ shares. It must be noted that the name of a share class is intended to become descriptive only, it doesn’t dictate the rights attached to these shares and can be misleading – beware.
There can be tax efficiencies in getting multiple share classes for the company; you should seek advice from your tax adviser in this regard. Should you are forming a company yourself, rather than through a solicitor, company secretarial services provider, or possibly a company formation agent then please note that the facts in the rights attached to every class of share will need to be stated on form IN01 (company formation application).
Forming a company with many share classes or making a brand new share class after formation calls for the adoption of suitable Articles of Association setting out the rights of each share class. Standard model type Articles of Association are certainly not proper. Please note that drafting Articles of Association is often a specialist ability which must be undertaken by a knowledgeable experienced.
Generating a new class of shares just after formation needs a unique resolution on the members (unless the Articles impose a stricter requirement) to adopt new Articles of Association. A type SH08 (notice of name or other designation of shares) may also be filed at Companies Property. You could also call for the consent of the holders of existing classes of share. If an allotment of shares takes place at a similar time (as is usually the case) then appropriate Board and Members resolutions will need to be passed additionally to filing type SH01 (Return of allotment of shares). Form SH01 needs information and facts concerning the allotment, the revised share capital of the company, and facts in the rights attaching to every single class of shares.
When the shareholders of a company enter into a shareholders agreement on forming the company, or subsequently, it may include restrictions on generating added share classes or issuing shares. The Articles of Association may also contain relevant restrictions, like pre-emption rights dictating that new shares ought to initially be offered to the current shareholder in proportion to their existing holdings.
Any share transfer rights or restrictions in a shareholders agreement or the Articles will also have to be adhered to or amended. Going forward, such restrictions might have to become amended to account for the introduction of new share classes. As an example, if a member of a class with voting rights desires to sell his shares, the remaining shareholders in that class might not want any shareholder presently holding non-voting shares to get hold of them.
When introducing a brand new class of shares, or altering the rights attached to a current class, be aware that existing shareholders may have legal remedies accessible to them (including a claim for unfair prejudice) if they may be negatively impacted by the alteration or introduction of your new class. Also please note that the amendment to rights attached to a specific class of shares needs the consent of that class. Searching for the unanimous consent of all shareholders towards the introduction of alteration to share classes avoids a lot of the prospective problems.
In summary, when contemplating UK company formation with many share classes, or when introducing new classes in respect of a current company, first think about the rights that every single class will bear, pass the suitable board and member resolutions, amend the present or adopt new Articles of Association, and make the proper filings at Companies Home.
The details provided in this write-up is intended as a general guide only. It’s not exhaustive or tailored for your circumstances.