17 February, 2016
Many Companies ordinarily have one class of share in issue however for SMEs the use of alphabet share structures can be both useful and efficient in a number of ways.
Alphabet shares are shares of different classes, which are often named as 'A' Shares, 'B' Shares and so on. Each different class of share can have different rights attached which are set out in the Company's articles of association.
Many SMEs find the use of such structures useful for remuneration and dividend planning as well as awarding shares to those who they wish to have reduced or no voting power.
They are often useful in family run Companies where certain shareholders are to be given more wide ranging powers, for example in a family run company the founding shareholder and his partner may wish to have the right to appoint a director, whereas the younger generation may be awarded shares for the purpose of spreading income amongst the family and capital tax planning but not have the right to vote or appoint a director if they are not to be involved in the day to day running of the Company.
Similarly in a Joint Venture Company if one party is bringing more to the table or is financing the Company then that party may wish to have weighted voting rights and the right to veto certain actions above other shareholders. Different share classes can be created in the articles and a Shareholders Agreement implemented to provide different rights for each party.
A company may wish to award dividends to shareholders that are not in proportion to their shareholdings. If an alphabet share structure is adopted and each shareholder is awarded a separate class of shares then different levels and rates of dividend can be declared on each separate class of shares at different times provided that the Company's articles of association are appropriately tailored and provide the express right for the different levels of dividend to be declared.
Alphabet share structures are also useful where a Company wishes to award shares to employees as an incentive to playing a part in the growth or boosting of the Company's profit. It is desirable for these shares to be non-voting and redeemable at nominal value if the employee is to leave the engagement of the Company and so alphabet share classes can be created to provide for these differentiated rights.
In order to create a new class of shares the Company will need to set out the classes and class rights in its articles of association and adopt the amended articles by special resolution. The share classes will then need to be allotted or converted and considered and approved by the directors and shareholders of the Company.
At Forbes our specialist team of Corporate Solicitors can assist you in restructuring your Company's share capital so as to better suit your needs. We are also able to undertake the restructuring work on a fixed fee basis so that you are aware of the associated costs from the outset.
If you have any questions about corporate restructures and alphabet shareholdings or require assistance with any other corporate matters then please do not hesitate to contact Jenny Burke.
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