All Limited by Shares companies within UK, by their very nature, will have a have an issued share capital. The shares within a company are used to reflect the percentage of ownership, voting rights and entitlement to dividends for the respective shareholders.
The issued shares within a company can be broken down into various ‘share classes’. Different classes of shares can have varying rights, or particulars, attached to these. Simple share structures consisting of a single class of shares are commonplace and are suitable for many new businesses.
There are, however, circumstances when multiple share classes are more appropriate. Multiple share classes can be issued at the time of the company registration or the share structure of the company can be changed at a later date. We regularly hear from clients who wish to set up ‘alphabet shares’.
What are Alphabet Shares?
‘Alphabet Shares’ are named as such because these shares are typically denoted by the letters of the alphabet, I.E. a company may issue Ordinary ‘A’ shares, Ordinary ‘B’ shares and Ordinary ‘C’ shares.
A primary reason for issuing Alphabet Shares is the greater flexibility in the rights attached to the shares that this affords.
Why are Alphabet Shares Used?
A common motive for issuing Alphabet Shares is to enable dividends to be issued disproportionately.
This may be to reflect the different contribution to the company by the respective shareholders. For example, Mr Smith may hold Ordinary A shares and Mrs Jones may hold Ordinary B shares to reflect their different level of investment within the company. A dividend of X amount can be issued to the Ordinary A shares and a dividend of Y amount can be issued to the Ordinary B shares so that the larger investor can receive a higher return on their investment.
Likewise, family-owned companies may issue Alphabet Shares for tax efficiency. Mrs Williams may have set up a company and may be a higher rate tax payer. Mrs Williams may decide to add their partner Mr Williams, who has no input in the company and is a lower rate tax payer, as a non-voting Ordinary B shareholder entitled to dividends. Issuing dividends to Mr Williams may be more tax efficient in such a case.
Alphabet Shares can also be used as an employee remuneration scheme whereby employees are partly paid in shares which, in turn, incentives their performance within the company.
How can we help?
We offer various company formation packages. When registering a company using our site it is simple to add bespoke share classes when completing the application process.
If you have an existing company and wish to change the share structure of this then we can help. Contact us today for a quote.