The main types of shares a UK company issues are ordinary shares, preference shares, non-voting shares, redeemable shares, alphabet shares (A, B and C ordinary) and deferred shares. Legally, they're all just classes: shares are one class if the rights attached to them are the same in every respect, and different classes if they aren't.
GOV.UK says most companies limited by shares start with one class, normally ordinary. You only need another class when you want some shareholders to have different rights to dividends, votes or capital. Here's what each type does, what you have to declare, and the rule that changes the moment you add a second class.
What makes shares a separate class
Section 629 of the Companies Act 2006 gives the test: shares are of one class if the rights attached to them are in all respects uniform. Any difference in rights creates a new class, with one exception. Shares don't become a different class just because they don't carry the same dividend rights in the twelve months after they're allotted.
When you register the company or issue new shares, GOV.UK says you have to describe each class's rights in the statement of capital. These are the prescribed particulars, and they must cover four things:
- What share of dividends the shares get.
- Whether the shares can be exchanged (redeemed) for cash.
- Whether the holders can vote on company matters.
- How many votes they get.
The six types, compared
| Type | Votes | Dividends | Typical use |
|---|---|---|---|
| Ordinary | Usually one vote per share | Whatever the company declares | The default for founders |
| Preference | Often none or limited | Paid before ordinary shares, often at a fixed rate | Investors who want income first |
| Non-voting | None | Can share in dividends | Staff or family who shouldn't control the company |
| Redeemable | As set out in the terms | As set out in the terms | A stake the company will buy back later |
| Alphabet (A, B, C) | Set for each letter | Can be declared separately for each letter | Different dividend levels for different owners |
| Deferred | Usually none | Usually none until others are paid | Parking shares with almost no rights |
Only the legal tests above are fixed. Names like "preference" or "alphabet" are labels, and the actual rights are whatever your articles and the terms of issue say. Two companies can both issue "preference shares" with very different rights, so always read the particulars, not the name.
Redeemable shares have their own rules
Redeemable shares are the one type with a specific chapter in the Act. Section 684 lets a limited company issue shares that are to be redeemed, or can be redeemed at the option of the company or the shareholder. Three rules apply:
- A private company's articles can exclude or restrict redeemable shares; a public company needs its articles to authorise them.
- You can't issue redeemable shares at a time when there are no issued shares that aren't redeemable. Someone has to hold a permanent share.
- Section 686 says redeemable shares can't be redeemed unless they're fully paid, and they must be paid for on redemption unless the terms allow a later date by agreement.
Under the model articles, article 22 lets the company issue shares with rights or restrictions decided by ordinary resolution, and lets the directors decide the terms of redemption for redeemable shares.
The catch with adding a second class
Here's the insight people miss. Section 550 gives the directors of a private company an automatic power to allot more shares, but only while the company has a single class. The day you create a second class, that shortcut goes. From then on, directors need authority under section 551, from the articles or a shareholder resolution, stating a maximum number of shares and an expiry date no more than five years away. Plan the authority at the same time as the new class, not after.
Choosing the right type
Start with what you're trying to do, then pick the class that does it:
- Bringing in a co-founder as an equal: more ordinary shares.
- Giving staff a share of profits without control: non-voting shares.
- Taking investment that's paid back first: preference shares.
- Letting an investor exit on a fixed date: redeemable shares.
- Paying different dividends to different owners: alphabet shares, with advice on how the dividends are taxed.
Shares can also be in any currency, and section 542 allows different classes in different currencies. For the tax on what you're paid, see my guide to the dividend allowance. If you haven't formed the company yet, registering a company in the UK shows where share classes go on the application, and sole trader vs limited company covers whether you need shares at all.
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My verdict
Most small companies should start with one class of ordinary shares and stay there until there's a clear reason to change. When you do add a class, write the four prescribed particulars carefully, sort out the directors' allotment authority at the same time, and treat the class name as a label, not a promise.
Frequently asked questions
What are the main types of shares in a UK company?
The common types are ordinary, preference, non-voting, redeemable, alphabet (such as A and B ordinary) and deferred shares. Legally, each is a separate class if its rights differ.
What makes shares a different class?
Section 629 of the Companies Act 2006 says shares are one class if the rights attached to them are in all respects uniform, so any difference in rights creates a new class.
What are prescribed particulars?
They're the rights you must describe for each class in the statement of capital: dividend rights, whether shares can be redeemed, whether they carry a vote, and how many votes.
What are most UK companies' shares?
GOV.UK says most companies limited by shares are set up with one class of share, which is normally ordinary.
Can a company issue only redeemable shares?
No. Section 684 says no redeemable shares may be issued at a time when there are no issued shares of the company that aren't redeemable.
Do redeemable shares have to be fully paid?
Yes. Section 686 says redeemable shares may not be redeemed unless they're fully paid.
Does adding a new share class affect directors' powers?
Yes. Section 550 only gives directors an automatic power to allot shares while a private company has one class. With more than one, they need authority under section 551.
