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Share Classifications

The different types of company shares are usually defined within the articles of association or by the lodgement of an appropriate statement, resolution or agreement. Different share classifications will confer different rights to the holder with regards to dividends, voting rights and winding up provisions. Some example of well known share categories can be seen below:

Ordinary Shares
By far the most common type of share issued for limited companies. An ordinary share will usually carry no additional rights other than those prescribed in the Companies Act 2006. The vast majority of shares listed on the London Stock Exchange are ordinary shares.

Preference Shares
Preference shares confer preferential rights often in respect of dividends and/or repayment of capital on winding up. The dividends on preference shares are usually cumulative which means that if they are unpaid the balance will accumulate and must be paid before any dividend can be paid on the ordinary shares.

Redeemable Shares
Redeemable shares serve to create a hybrid between equity and debt security to enable shares to be issued on the basis that they may be redeemed at an agreed date in the future. The redemption of shares would normally involve a repayment of the initial capital subscribed for the shares, the shares are then cancelled on repayment of the liability.

Convertible shares
Convertible shares are issued with the expressed agreement that they will convert to a different class of share upon the occurrence of a certain event. They can in affect be used to transfer rights between various shareholders.

Participating shares
These shares carry the right to a dividend if the company's profits reach a certain level (or some other financial target is reached)

Deferred or founder's shares
These shares can only be subject to a distribution of the companys profits or return of capital after a certain prescribed minimum has been paid to every other class of shareholder. These shares are sometimes also referred to as management shares.
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