At its simplest, different classes of shares exist to give companies flexibility in how ownership, control and economic benefit are distributed. Whether you are advising a founder, negotiating investment terms or cleaning up a messy cap table, a solid grasp of the basics will go a long way.

Here is your 101 on the main types of share classes in UK companies. They are more than just letters of the alphabet.

Ordinary shares: the default setting

Most UK companies issue ordinary shares. These typically carry

• the right to vote on shareholder matters
• the right to dividends
• the right to capital on a winding up

Unless a company’s articles or shareholders’ agreement state otherwise, all ordinary shares rank equally. However, companies can create different sub-classes of ordinary shares, commonly known as alphabet shares (A shares, B shares and so on), to give shareholders varying rights, such as different dividend entitlements or control provisions. 

Preference shares: first in line

Preference shares are typically issued to investors who want greater protection or guaranteed returns. These shares often

• carry a fixed dividend, which may accrue if unpaid
• rank ahead of ordinary shares on distributions and on a winding up
• may or may not have voting rights, although often they do not

They can be cumulative, meaning missed dividends roll over, or non-cumulative, meaning missed payments are lost. The terms of preference shares are usually negotiated and set out in bespoke articles or investment agreements.

Redeemable shares: a built-in exit strategy

A company may issue redeemable shares, which give it the right or obligation to buy the shares back at a future date or on specific terms. These are commonly used in

• venture capital or private equity transactions
• employee share buyback arrangements
• capital reduction strategies

The key point is that redeemable shares allow the company to tidy up its shareholding at a later stage without relying on a third-party sale.

Non-voting shares: economic benefit without control

As the name suggests, non-voting shares offer shareholders rights to dividends and capital but no say in how the company is run. They are often used to

• incentivise employees without diluting control
• bring in passive investors
• facilitate family ownership structures

Bear in mind that “non-voting” may still carry some minimal rights, such as the ability to vote on matters affecting that class directly.

Custom share classes: tailored to fit

One of the strengths of the UK corporate system is its flexibility. Companies can create bespoke share classes with tailored combinations of rights. This can include

• enhanced voting rights, such as ten votes per share
• veto rights on key decisions
• anti-dilution protections
• dividend preference plus participation

These arrangements must be properly reflected in the articles of association, and ideally in a shareholders’ agreement, to avoid future disputes.

Why use different classes?

The reasons vary, but the goal is usually balance between control, reward and flexibility. A few scenarios where share classes play a key role include:

• Start-ups: Founders might keep ‘A’ shares with full voting rights while giving early employees ‘B’ shares with limited rights and dividend access.
• Investments: Preference shares are often used in funding rounds to protect investors’ returns.
• Succession planning: Non-voting or alphabet shares can help pass on value to family members without losing control of the business.
• Exit strategy: Redeemable shares offer clean exit options for short-term investors.

What to look out for as a lawyer

Share classes might seem simple, until they are not. A few things to keep on your radar:

• The articles and any shareholders’ agreement take priority. Always check what they say about rights and restrictions.
• Tax implications can vary. HMRC may scrutinise different classes, especially if they impact valuation or CGT on exit.
• Classes can be customised, but not casually. Creating or altering share classes requires proper authorisation, documentation and often special resolutions.