Share Classes
/ʃeə ˈklɑːsɪz/
Share classes are different categories of company shares that carry varying rights, privileges, and restrictions regarding voting, dividends, and ownership control.
Share classes are different categories of company shares that carry varying rights, privileges, and restrictions regarding voting, dividends, and ownership control.
Share classes determine what level of control and financial benefits each shareholder receives.
Ordinary shares typically provide voting rights and dividend entitlements, whilst preference shares might offer priority dividend payments but limited voting power.
This structure allows founders to maintain control whilst attracting investment.
Most early-stage companies start with ordinary shares for founders and employees.
As they grow and seek investment, they often introduce preference shares for investors, which typically include rights like liquidation preferences and anti-dilution protection.
Some companies also create different classes of ordinary shares with varying voting rights.
Founders should evaluate share classes when raising investment rounds, bringing on new partners, or implementing employee share schemes.
Different share classes become particularly important when you want to maintain voting control whilst giving investors financial preferences, or when creating employee incentive programmes.
Share classes significantly influence investor negotiations and company valuations.
Investors often require preference shares with specific rights and protections.
The existing share class structure affects how new investment rounds are priced and how ownership gets diluted, making it crucial to plan your share classes strategically from the beginning.
Employee share schemes typically use ordinary shares or share options that convert to ordinary shares.
Some companies create specific employee share classes with particular vesting schedules or transfer restrictions.
The chosen share classes should align with your employee retention goals and tax efficiency requirements.
Share classes can be modified, but this requires shareholder approval and proper legal procedures through your relevant company registry.
Changes become more complex as your company grows and gains more shareholders, particularly investors with protective rights.
It's generally easier and more cost-effective to establish appropriate share classes early in your company's development.
