Understanding the Different Types of Shares and Share Classes in UK Companies

Thinking about starting or growing a UK company? If so, you’ve likely come across the terms “shares” and “share classes”-but what do they actually mean for you as a business owner, and why do they matter so much as your company grows?

Whether you’re preparing to bring in investors, incentivise key team members, or even plan for succession in a family business, getting the structure of your company’s shares right can make a huge difference down the track.

In this guide, we’ll break down the different types of shares and share classes available in UK companies, explaining the key features, common uses, and practical considerations you should keep in mind. This isn’t just theory-clear, tailored share structures help you protect control, attract the right investors, and make sure everyone involved knows where they stand.

Let’s jump in and make the world of share classes simple and actionable, so you can move forward with confidence.

What Are Shares And Share Classes?

At their core, shares represent units of ownership in a company. When you hold a share, you hold a slice of the business-entitling you (depending on the specific rights attached) to things like voting at general meetings, receiving dividends, or sharing in the company’s assets if it winds up.

But not all shares are created equal. Companies can issue different types of shares, known as share classes, to provide different rights and responsibilities to different groups of shareholders. These classes help you tailor company ownership to your business goals, whether that’s incentivising employees, keeping control in a founder group, or attracting specific types of investment.

Common motivations behind creating more than one class of shares include:

• Giving different voting or financial rights to founders vs. investors
• Rewarding employees or key team members with “growth shares”
• Enabling outside investors to participate economically, but limiting their voting influence
• Establishing priority in the return of capital or dividends
• Succession planning for family businesses

Each type of share class is defined in your company’s articles of association (the rules governing how your company is run) and, often, in a shareholders’ agreement for extra clarity. It’s crucial these documents are kept clear, understandable, and up-to-date to prevent disputes down the line.

What Are The Most Common Types Of Share Classes?

Let’s have a closer look at the typical types of shares used in UK companies, and the scenarios in which they’re most useful.

Ordinary Shares

This is the standard type of share most companies start with. Ordinary shares usually carry equal voting rights, equal rights to dividends, and equal entitlement to capital (i.e., a share in what remains if the business is wound up). They’re often used where the ownership structure is simple, and all shareholders are on the same footing.

• Voting rights: Yes (usually one vote per share)
• Dividend rights: Yes (if declared)
• Capital rights: Yes (pro-rata share on winding up)

Example: Two founders each own 50 ordinary shares in a new startup-they have identical rights and responsibilities.

Preference Shares

Preference shares give holders preferential rights, often to receive a fixed dividend before ordinary shareholders and to have priority when capital is returned on a winding up. However, preference shares usually don’t come with the same voting power as ordinary shares.

• Fixed dividends: Paid before ordinary shareholders receive theirs
• Priority return of capital: If the company is liquidated, preference shareholders get paid before ordinary shareholders
• Voting rights: Sometimes limited or none at all

Example: An investor wants a regular, lower-risk return and less interest in voting-preference shares are a common solution.

Non-Voting Shares

Non-voting shares are exactly what they sound like-shares that entitle the holder to dividends and/or capital, but carry no voting rights. They’re typically used when you want to give someone a financial stake in the business, but not let them influence company decisions.

• Voting rights: None
• Financial rights: Typically same as ordinary shares, but check your articles for specifics

Example: You want to reward a loyal manager with a stake in the company, but want to keep decision-making power amongst the founders.

Redeemable Shares

Redeemable shares are shares that the company has the option (or obligation) to buy back (“redeem”) at a future date or event, often at a pre-set price. These are commonly issued as a form of short-term investment or to facilitate exit strategies.

• Redemption: Company can buy back shares at a specific time or event
• Often issued to: Investors or employees

Example: Staff are given shares that the company can repurchase if they leave, or investors take shares that will be bought out after a period of growth.

“Alphabet Shares” (A Shares, B Shares, Etc.)

Many companies create “alphabet share classes” (e.g., A shares, B shares, C shares), where each class has its own specific set of rights. These are highly customisable, letting you divide voting, dividends, and other powers any way you wish.

• Customisation: Each class can have unique rights (e.g., only A shares vote, only B shares get dividends, etc.)
• Flexibility: Popular with startups, family businesses, and for investment rounds

Example: Three founders each get a different class (A/B/C shares) with equal voting and dividend rights, but new investor D gets D shares that can’t vote but have preferred dividends.

For an even more detailed look at common share classes, have a look at our full explainer: Preference Shares: What Are They?

What Rights Can Vary Between Share Classes?

At the heart of a share class is the collection of rights it gives the holder. These can be tailored to the company’s exact needs and are usually set out explicitly in the Articles of Association. The most common variables include:

• Voting Rights: The right to vote (or not) at shareholder meetings.
• Dividends: Whether the shareholders have a right to share profits, and whether that right is fixed, capped, or discretionary.
• Return of Capital: Priority or entitlement if the company is wound up, i.e., who gets paid first and how much.
• Redemption Rights: Whether shares can be bought back by the company (see share buybacks for more on this process).
• Transfer Rights: Some share classes may be easier (or harder) to transfer to others, which is important for succession or exit events.

Clearly defining these rights is essential. Fuzzy or ambiguous share class rights are a recipe for conflict and can seriously damage your business. That's why it’s best not to rely on off-the-shelf templates-get professional help to draft or review your company’s share class structure.

How Do You Issue Different Share Classes?

If your company is currently set up with only ordinary shares but you want to introduce a new class, there are a few key legal and procedural steps to follow:

1. Check Your Articles of Association: Your company’s articles need to authorise the creation of new share classes. If not, you’ll need to amend them.
2. Amend the Articles If Needed: This usually requires passing a special resolution of the shareholders (at least 75% approval), and then filing the change with Companies House.
3. Get Board and Shareholder Approval: Even if the articles allow it, check if a director or shareholder vote is needed for the new share issuance.
4. Issue the New Shares: Allot the new shares, ensuring each recipient gets a share subscription agreement or another formal contract setting out terms.
5. File With Companies House: Notify Companies House of the new share class, including details for the public register.

Failing to follow these steps precisely can make the new class invalid-or worse, embroil you in shareholder disputes or regulatory trouble-so always cross-check your company records and get legal advice before proceeding.

When Would A Company Use Multiple Share Classes?

There are dozens of legitimate reasons UK business owners create more than one share class. Some of the most common examples include:

• Attracting Investors: You want to give new investors a financial interest but not dilute founders’ control-so you create “investor” shares with dividend rights but limited votes.
• Rewarding Employees: Issuing “growth shares” to team members that only pay off if the company hits future performance goals.
• Preparing for Exit or Succession: Allowing founders or family members to retain control while other classes enable future buyouts or generational transfers.
• Managing Decision-Making: Creating separate share classes with varying voting weights to reflect different levels of involvement or investment.
• Handling External Uncertainties: Setting up redeemable shares for investors who may want their capital back after a set period.

Imagine your company is booming and you want to grant early-stage investors a guaranteed return (preference shares), while keeping decision-making power with the original founders (ordinary shares). Alternatively, you might want to issue non-voting shares to key advisors or team members so they’re financially rewarded without influencing major company decisions.

Whatever your reason, the crucial point is that every class should be clearly defined-both for legal certainty and to manage shareholder expectations. For more on how share structures affect growth and fundraising, check our guide: Raising Capital For Your Startup.

What Legal Documents Should Support Your Share Classes?

It can’t be stressed enough: clear, professionally drafted documents are the backbone of a healthy share structure. The key documents every company with multiple share classes needs are:

• Articles of Association – The foundational rulebook for the company, including all share class rights.
• Shareholders’ Agreement – Sets out, in plain English, how the shareholders will work together and what happens if things change (e.g., a shareholder wants to sell, or the company is sold).
• Share Subscription Agreements – Contracts by which new shareholders are issued shares, spelling out their rights and restrictions.
• Board Resolutions & Special Resolutions – Formal company decisions recorded in writing, especially for new class issuances or changes.

Each of these documents must reflect the same terms-otherwise, inconsistencies can lead to enforceability issues. Regularly review and update your company paperwork as your business evolves-what worked for a two-founder startup might not fit a scaling, investor-backed company.

Practical Advice For Setting Up The Right Share Structure

Setting up share classes isn’t just about “doing what other businesses do.” The best structure is the one that fits your business goals, growth plans, and management approach. Here are some practical tips:

• Start simple, build as needed: Don’t overcomplicate things. Begin with ordinary shares, then add other classes only if you have a clear business reason.
• Think about the future: Evaluate how your share structure might affect raising investment, succession, or potential sale.
• Document everything clearly: Use straightforward, plain English and be consistent across all your key legal documents. Ambiguity is the enemy!
• Review regularly: As your business evolves-new shareholders, investors, or exit plans-make sure your share structure still meets your needs.
• Seek specialist advice: Avoid DIY or generic templates. Tailored legal help is a smart investment for preventing disputes or costly errors.

It can be daunting to set up a share structure, especially if you’re new to company law. Don’t stress-you’re not alone. Our team regularly assists UK startups and established businesses in changing their company ownership or share structures as their needs develop.

Key Takeaways

• Different types of shares (share classes) give you flexibility to tailor voting, dividend, and ownership rights for varied shareholder groups.
• The most common share classes in the UK are ordinary, preference, non-voting, redeemable, and custom “alphabet” shares.
• All rights and restrictions must be clearly set out in your articles of association, with supporting shareholders’ agreements and proper documentation.
• Introducing a new share class usually requires amending your company’s articles and filing with Companies House.
• Share structure should align with your business objectives-attracting investment, employee incentives, control, or succession planning.
• Stay clear, consistent, and consult a legal expert to future-proof your share structure and prevent shareholder disputes.

---

If you’d like help navigating share classes for your business, or want to set up or amend your company’s share structure, reach out for a free, no-obligations chat with our friendly solicitors. Call us on 08081347754 or email team@sprintlaw.co.uk-we’re here to help you get protected from day one and grow with confidence!