If your construction or engineering business is limited by guarantee, it follows that you will have shareholders.
Most businesses only have one class of shares but there are multiple classes that exist and it is important to understand the variations between them. Here, Matthew Johnson, an Associate Solicitor with Palmers, outlines the different types of company shares:
Different classes of shares will hold different voting, dividend and capital rights and the owner of each company can decide how to class the shares they give out based on each investor or sometimes the relationship between the owner and shareholder.
There are four main classes:
Ordinary shares are the most common class and this allows shareholders equal rights when it comes to voting, dividends and any other factors within the shares.
You can create different classes of ordinary shares, so as to take into account the small differences needed between the different classes.
An example of this would be to allow different dividends to the shareholders despite both holding ordinary shares.
As you would guess, non-voting shares give you no voting rights within your shares. This is often a class given to employees as a way to pay dividends, which is more tax-efficient but without the full rights of ordinary shares.
Non-voting shares can also be given to your family members who have an interest in the company and its value but are not involved enough to need to vote.
This class of shares could be seen as a temporary one. They are given out with clear terms that they may be taken back in the future.
In some cases, there can be a specific date that these shares will be bought back on.
It may be a good idea to make employees’ shares redeemable as this allows you to take them back if an employee leaves the company.
However, there are restrictions on redeeming these shares as you can only redeem them out of accrued profits or the earnings of a new issue of shares. This may be something to keep in mind when choosing to issue them out.
These shares carry a preferential right to a fixed dividend, which is displayed as a percentage for the shareholders.
This is still only payable out of profits regardless of the amount chosen.
Preference shares are also commonly non-voting and are another option often given to family members of company owners or shareholders.
If you are unsure what types of shares you wish to issue from your company, we can advise you on the most suitable option.
For advice and further information, please get in touch with our commercial team.