Creating different classes of alphabet shares allows a business to attach different rights and pay different rates of dividends according to shareholders’ individual shareholdings. It is an efficient, flexible and often tax-efficient method of structuring your business.
Our specialist Corporate Law team offer straightforward, commercially-minded advice to a wide range of individual shareholders and businesses, from local owner-managed businesses, start-ups and small and medium enterprises, to large regional, national and international corporations.
We have substantial experience helping businesses define shareholder rights, drafting corporate agreements, managing risk and providing robust dispute resolution advice.
Our corporate law solicitors can provide all the advice and guidance you need about creating an alphabet share structure, from reviewing and drafting Articles of Association, to advising on the allotment of new shares or re-designation of existing shares.
Our service is carefully tailored to suit the individual needs of our clients, taking into account the commercial realities of their business and long-term objectives.
For advice about setting up an alphabet share structure, please fill in our Online Enquiry Form and a member of our corporate team will contact you as soon as possible.
What are alphabet shares?
Alphabet shares is the term used to describe different classes of ordinary shares within a company, typically denoted by letters – A shares, B shares, C shares etc.
Why create different classes of alphabet ordinary shares?
Alphabet shares can have different rights attached to them pursuant to the company’s Articles of Association. Typical uses of alphabet shares include:
To pay dividends at different rates to individual shareholders
Dividends can be used as a tax-efficient way of paying directors and shareholders, rather than paying them a salary. So, alphabet shares can be used to pay different rates of dividends to individual shareholders. For example, shareholder A may hold all the company’s A shares and Shareholder B may hold all of the company’s B shares.
The Articles of Association must be amended to allow the company members to differentiate between classes of shares and the rates of dividends payable. This is because the Model Articles or Table A – which are the default Articles of Association that apply if a company does not implement its own Articles – require that dividends are paid in proportion to number of shares held.
To issue different classes of shares in family companies
It is common for family companies to distribute shares between family members, allowing them to receive dividends and to split income and improve tax-efficiency (although use of any such mechanism should be undertaken with independent tax advice ).
Alphabet shares allow flexibility over the rates of dividends and the rights attributed to each family member. For example, a company director’s spouse may own shares with no or limited voting rights.
To award shares to employees
Alphabet shares may be used to safely operate schemes allowing employees to be partly paid in the form of dividends. Such schemes can encourage employee loyalty and engagement in the business while being tax-efficient. The classes of shares awarded to employees will vary depending on the way the scheme is set up, but typically the shares will be non-voting and allow the shares to be taken back by the company should the employee leave the business.
To facilitate joint ventures
Where two or more independent companies are embarking on a joint venture, alphabet shares are often used to define each joint owner’s rights. For example, where two companies set up a new third company, company A may own all the A shares and company B may own all the B shares. The new company’s Articles and/or Shareholders Agreement will then set out the various provisions attached to each owner’s class of shares.
Our expertise with alphabet share structures
Our service includes:
- Step-by-step advice on setting up alphabet share structures, issuing new shares and protecting shareholder rights.
- Reviewing, drafting and amending Articles of Association and Shareholders Agreements.
- Handling Companies House notices, administration and filing.
- Advising on other shareholder rights considerations, such as exit strategies, minority rights and board management.
Our Corporate & Commercial team have been independently recognised for our expertise in a number of areas:
- We are ranked Band 1 (the top rank) for Corporate/M&A: SME/Owner-managed Businesses by leading client guide, Chambers and Partners.
- Our Head of Corporate Commercial, Ben Madden, is individually ranked Band 1 by Chambers & Partners.
- Senior Partner, Andrew Wright, is recognised as an Eminent Practitioner by Chambers & Partners.
- Our Corporate & Commercial team is also highly ranked by another leading client guide, the Legal 500.
Our legal fees for creation of alphabet share structures
Costs are central to any corporate and commercial matter, so we keep our pricing clear and transparent. Where possible, we can act on a fixed fee basis, giving you certainty over the costs involved in your matter. Alternatively, we can flexibly agree a budget based on our hourly rates – whichever option is most appropriate to achieve your objectives.
Find out more about our fees.
Speak to our corporate law solicitors in Orpington for advice about alphabet share structures.
If you require further advice, please fill in our Online Enquiry Form and a member of our corporate team will contact you as soon as possible.