If you’re starting a company, investing in one, or simply looking to better understand how ownership works, knowing the different types of shares is essential. Shares do more than just represent ownership; they define who gets to vote, who receives dividends, and who holds power when big decisions are made.
From ordinary shares to preference and redeemable options, each class comes with unique rights and responsibilities. In this guide, we’ll walk you through the most common types of shares, explain how they’re used in practice, and help you decide which structure fits your goals, whether you’re building a business or building wealth.
What Are Shares & Share Classes?
Shares represent units of ownership in a company. When you own shares, you own a portion of that company and may be entitled to dividends, voting rights, and a share of profits or assets upon liquidation.
But not all shares are the same.
Companies can issue different classes of shares, each with varying rights, restrictions, and benefits. These are known as share classes, and they allow businesses to tailor ownership structures, such as giving investors a fixed return or allowing founders to retain control without holding the majority of equity.
The rights attached to each class of shares are typically outlined in a company’s articles of association or a shareholders’ agreement, both of which define how the company is governed.
Common Share Types
1. Ordinary Shares
Ordinary shares are the most common type of share issued by companies. They are often referred to as “common shares” in some countries and are typically held by founders, investors, and the general public.
Key features:
- Voting rights: Usually one vote per share.
- Dividends: Paid out based on company performance and profits.
- Ownership: Equal claim to residual profits and assets after all debts and preferences are paid.
Pros:
✔ Simple structure
✔ Equal rights among shareholders
✔ Potential for capital gains
Cons:
✖ Dividends not guaranteed
✖ Lower priority during liquidation compared to preference shares
2. Preference Shares
Preference shares offer preferential treatment over ordinary shares, particularly when it comes to dividends and return of capital.
Key features:
- Fixed dividend: Paid before any dividend is issued to ordinary shareholders.
- No voting rights: Typically do not come with the right to vote on company matters.
- Priority in liquidation: Paid out before ordinary shareholders if the company winds up.
Subtypes include:
- Cumulative: Unpaid dividends roll over until paid.
- Non-cumulative: Missed dividends are not carried forward.
- Participating: Entitled to extra dividends after fixed dividends are paid.
- Convertible: Can be converted into ordinary shares.
Ideal for:
Investors looking for more stable, predictable returns.
3. Redeemable Shares
Redeemable shares are issued with the agreement that the company can buy them back at a later date, either at a fixed time or at the discretion of the company.
Key features:
- Fixed-term investment: Often used for raising short-term capital.
- Not permanent equity: Can be bought back by the company.
- May include fixed dividends: Depending on how they’re structured.
Important to note: Not all shares are redeemable, only if the articles of association allow it.
Use case:
Companies raising funds temporarily without diluting long-term ownership.
4. Non-Voting Shares
These shares do not carry the right to vote on company decisions, but may still receive dividends and benefit from capital appreciation.
Why issue them?
To attract investors who want financial returns but not control, or to preserve voting power among founders or key stakeholders.
Typical use cases:
- Employee shares
- External investors with no decision-making role
- Family businesses where control stays within the family
5. Alphabet Shares (A, B, C Shares)
Alphabet shares refer to different classes of ordinary shares, often labelled as Class A, Class B, Class C, etc.
Each class may come with:
- Different voting rights (e.g. A shares = 1 vote, B shares = 10 votes)
- Different dividend rights
- Specific transfer restrictions
Why companies use them:
- To separate control from ownership
- To incentivise employees differently from founders
- To structure founder vs. investor rights cleanly
Example: A tech startup might give Class B shares to founders with 10x voting power and Class A shares to outside investors.
Other Share Variants
Beyond the most common classes, there are several other share types that serve more specialised purposes, depending on the company’s structure and goals.
6. Deferred Shares
Deferred shares receive dividends only after all other share classes have been paid. These are often used internally, such as by founders or directors, and may carry fewer rights in exchange for long-term value.
Typical traits:
- Lower or no dividend entitlement upfront
- No voting rights (in many cases)
- Used to postpone profit participation
7. Tracking Shares
Tracking shares (or “trackers”) are linked to the performance of a specific part of the company rather than the company as a whole. They allow investors to benefit from a particular division or asset without owning the entire company.
Example: A large conglomerate may issue tracking shares tied to a specific subsidiary or product line.
8. Employee Share Schemes (e.g. ESOP Shares)
These shares are issued as part of employee incentive plans, such as Employee Share Option Plans (ESOPs) or growth shares.
Purpose:
To align employees’ interests with company performance, encourage retention, and reward key talent.
Common forms:
- Options that vest over time
- Growth shares, which only benefit from future company value
- Restricted shares, with sale or transfer limitations
9. Treasury Shares
These are previously issued shares that the company has repurchased and held in its own “treasury”. Treasury shares carry no voting or dividend rights and are not included in profit-sharing.
10. Bearer Shares (Now Defunct in the UK)
Bearer shares were once popular because ownership could be transferred anonymously, simply by handing over the physical certificate. Due to transparency concerns, they have been abolished in many jurisdictions, including the UK.
Why Companies Use Different Share Classes?
Creating multiple share classes offers flexibility in managing ownership, control, and financial returns.
Companies may structure share classes to:
- Retain control among founders or family members
- Attract external investors with preferred terms
- Offer tailored benefits to employees or early contributors
- Create convertible shares to support future investment rounds
- Minimise tax liabilities with careful dividend allocation
This flexibility is especially valuable for startups, scale-ups, and family-run businesses seeking to balance growth and control.
Legal & Practical Considerations
Issuing different types of shares isn’t as simple as printing a certificate. Share rights must be clearly defined in the company’s articles of association and any shareholders’ agreements.
Key steps include:
- Draft or update the company’s articles to reflect share classes
- Pass a shareholder resolution to issue new share classes
- Notify Companies House (if you’re based in the UK)
- Update the share register and issue share certificates
You should always consult a solicitor or company secretary before creating new share classes to ensure compliance with company law and tax regulations.
Investor’s Quick Guide
Here’s a simplified comparison of share types:
| Share Type | Voting Rights | Dividend Priority | Risk/Return |
| Ordinary Shares | ✔ | Standard | Medium to High |
| Preference Shares | ✖ | High | Lower Risk |
| Redeemable Shares | Optional | Moderate | Short-Term Returns |
| Non-Voting Shares | ✖ | Possible | Moderate |
| Alphabet Shares | Customised | Customised | Varies |
How to Draft a Share Strategy
If you’re a founder or director, designing your company’s share structure is a vital strategic decision.
Steps to take:
- Define your objectives – control, investment, incentives?
- Select appropriate share types
- Formalise your structure – update your articles
- Ensure compliance – notify authorities and record changes
- Communicate clearly – especially with investors and employees
A clear, intentional share strategy can help your business grow, attract investment, and avoid costly disputes later.
Bottom Line
Choosing the right types of shares is more than just a paperwork exercise; it’s a strategic move that can shape your company’s success or your investment’s future. Whether you’re building a business, joining one, or investing from the outside, understanding share classes puts you in control. From voting rights and dividends to control and long-term value, your choices matter.
Now that you’re equipped with the knowledge, speak to a legal or financial advisor from Sigma Chartered Accountants & Tax Advisors to make sure your share structure aligns with your goals.
FAQ
Q1. What’s the difference between ordinary and preference shares?
Ans: Ordinary shares typically offer voting rights and variable dividends. Preference shares usually have fixed dividends and no voting rights.
Q2. Can a company have multiple share classes?
Ans: Yes. Many companies issue multiple share classes (e.g. A, B, C shares) with different rights and privileges to suit investor and management needs.
Q3. Do non-voting shares still receive dividends?
Ans: They can, depending on the rights attached to that share class. Dividends are defined in the company’s governing documents.
Q4. Are redeemable shares permanent?
Ans: No. They are designed to be bought back by the company after a certain period or under agreed conditions.
Q5. Do all share classes apply to startups?
Ans: No, not all are relevant. Most startups begin with ordinary shares, then introduce other classes as they grow and raise capital.
