What is a share class?

16th July 2026

A share class is a designation of shares held by investors within a company limited by shares.

While every share represents ownership in a company, different share classes can give shareholders different rights and responsibilities. Some shareholders may have voting rights, others may receive priority when dividends are paid, and some may have little involvement in the day to day running of the business despite owning part of it.

Still confused? 99p Company Formations explains everything you need to know about share types and shares classes below. 

What is a share class?

A share class is a category of shares that carries a specific set of rights within a company.

Every company limited by shares must issue at least one share when it is incorporated. Those shares represent ownership of the business, but they don't all have to offer the same benefits or level of control. Instead, companies can create different classes of shares that give different shareholders different rights. This allows ownership to be tailored to suit the needs of the business and the people involved.

The rights attached to each share class are set out in the company's Articles of Association. 

Types of share in a limited company 

Ordinary shares 

The majority of limited companies have ordinary shares. If you're setting up a new business and aren't planning to bring in outside investors or create a more complex ownership structure, ordinary shares are likely to be the only share class you'll need.

Many companies continue using only ordinary shares throughout their lifetime because they provide everything needed to operate a successful business without introducing unnecessary complexity.

The standard principle for this share class is that each share equates to 1 vote. For example, a limited company with 100 shares could distribute shares equally to 5 shareholders, meaning each shareholder would own 20% of the business.

While it is also possible to break these shares down into classes that determine more specific roles and rights within the company, ordinary shareholders will commonly have the right to:

• Vote on shareholder resolutions

• Receive dividends when they are declared

• Share in the company's value if it is sold or wound up

• Receive information about the company's performance

• Participate in major company decisions requiring shareholder approval

These rights make ordinary shares suitable for founders who are actively involved in building and managing the business.

When are ordinary shares the best option?

Ordinary shares are often the right choice when:

• You're setting up a company on your own

• You're starting a business with one or more partners

• All shareholders will have similar responsibilities

• Everyone should have equal voting rights

• The ownership structure is unlikely to become complicated in the short term

Preference shares 

Shareholders with preference shares often have no voting rights but are entitled to a fixed dividend that is guaranteed to be paid out before other shareholders receive anything.

Preference shares may also offer priority if the company is wound up. Once creditors have been paid, preference shareholders may recover their investment before ordinary shareholders receive any remaining assets.

Why do companies issue preference shares?

Preference shares are commonly used when businesses are looking to raise investment.

An investor may be willing to provide funding but have little interest in becoming involved in the day to day management of the business. Preference shares allow the company to offer greater financial protection without necessarily giving away significant voting power.

This can be beneficial for both parties. Founders retain greater control over how the business is run, while investors gain additional confidence that their investment is protected if profits are distributed or the company is eventually sold.

Are preference shares suitable for every business?

No. For many small companies and first time founders, preference shares add unnecessary complexity. However, they can become a valuable tool as a business grows, particularly when attracting outside investment or creating a more sophisticated ownership structure.

As with any share class, the rights attached to preference shares should be carefully documented in the company's Articles of Association so that every shareholder understands exactly how the shares operate.

Redeemable shares 

Redeemable shares are a type of share that can be bought back by the company or the shareholder at an agreed point in the future.

Unlike ordinary shares, which are generally intended to represent ongoing ownership of the business, redeemable shares are often used where ownership is expected to change over time.

The terms attached to redeemable shares will usually outline when and how they can be redeemed. This may happen on a specific date, after a particular event occurs, or when certain conditions are met.

For example, a company may issue redeemable shares to an investor who provides funding during an early growth stage. Rather than becoming a permanent shareholder, the investor may hold these shares temporarily and receive their investment back once the agreed conditions are met.

Why do companies use redeemable shares?

Redeemable shares can provide flexibility in situations where a company wants investment or involvement from a shareholder, but does not want that ownership to continue indefinitely.

They may be used for:

• Temporary investment arrangements

• Employee share schemes

• Rewarding individuals for a specific contribution

• Providing investors with a planned exit route

• Structuring ownership during periods of growth

What should companies consider before issuing redeemable shares?

Redeemable shares can be useful, but they are more complex than ordinary shares.

The company must carefully define the rights attached to these shares, including:

• When redemption can take place.

• Who has the right to request redemption.

• How much the shares will be redeemed for.

• Whether the shareholder has voting or dividend rights.

There are also legal requirements surrounding the redemption of shares, meaning companies must ensure they follow the correct procedures.

For small and new businesses, ordinary shares are usually sufficient. However, redeemable shares can be a useful option where a company wants more control over how ownership changes in the future.

Deferred shares 

Deferred shares are a less common type of share class that places shareholders lower in priority compared to other shareholders. As the name suggests, the benefits attached to these shares are often ‘deferred’ until certain conditions are met.

This means deferred shareholders may have limited rights to dividends or company assets until other shareholders have received their agreed entitlement.

For example, a deferred share may only become valuable once a company is sold or achieves a specific business milestone.

Deferred shares are not usually appropriate for new businesses. Common situations where deferred shares may be considered include:

• Founder arrangements

• Employee incentive schemes

• Long term reward structures

• Investment agreements

Non-voting shares 

Non-voting shares allow someone to own part of a company without giving them the same decision making power as other shareholders.

However, they may still receive other benefits of ownership, such as dividend payments or a share of the company's value. This makes non-voting shares useful when someone wants to benefit financially from a company but should not have control over how it is run.

However, it is important that everyone understands the difference between owning shares and having control. A person can own part of a company while having very limited influence over how it operates.

For more information on the rights and responsibilities of shareholders, take a look at our guide on the role of a shareholder in UK companies. 

What are alphabet shares? 

Alphabet shares are one of the most commonly discussed examples of different share classes, particularly among small and family run businesses. Despite the name, alphabet shares are not a separate legal type of share; they are a type of ordinary share structure where different classes are given different labels, such as A shares, B shares or C shares and so on.

For example, a company may issue:

• Ordinary A shares

• Ordinary B shares

• Ordinary C shares

Each class can have different rights attached to it, depending on what the company needs.

The purpose of alphabet shares is to create flexibility within the ownership structure while keeping the different classes easy to identify.

Why do companies use alphabet shares?

One of the most common reasons companies create alphabet shares is to give different shareholders different dividend rights.

For example, a company may have two shareholders who are both directors. Instead of issuing identical shares, the company could create separate share classes that allow dividends to be paid differently between them.

This can be useful where shareholders have different financial needs or levels of involvement in the company.

Common uses of alphabet shares

Family businesses

Alphabet shares are often used by family owned companies because they allow ownership and financial benefits to be divided flexibly.

For example, parents may want their children to own shares in the business but may not want all shareholders to have identical voting rights or dividend entitlements.

Different dividend payments

Alphabet shares allow companies to create different dividend rights between shareholders. This can be useful where shareholders contribute differently to the business or have different roles.

For example:

• A shareholder may receive one level of dividend

• B shareholders may receive another

• C shareholders may not receive dividends but has voting rights

Bringing in new shareholders

A growing company may create a new share class when bringing in investors or new members of the team.

Instead of changing the rights of existing shareholders, the company can issue a new class of shares with specific conditions attached.

Are alphabet shares suitable for every company?

Although alphabet shares provide flexibility, they are not always necessary. For small businesses, creating multiple share classes at the start can make the company structure more complicated than it needs to be.

If you are starting a business with one owner or a small group of founders with similar goals, ordinary shares will often be the simplest option.

However, if you already know that your company may involve multiple family members, investors, employees or different levels of ownership in the future, considering different share classes early helps you create a structure that can grow with the business.

How do you choose the right share class for your shareholders?

Choosing a share class depends on how you expect your company to operate, both now and in the future.

There is no single best share structure for every business. The right option depends on factors such as who owns the company, whether you plan to attract investment, and how much control different shareholders should have.

For example:

• A sole founder will often choose ordinary shares.

• Business partners may divide ordinary shares based on ownership percentages.

• Companies expecting investors may consider preference shares.

• Family businesses may benefit from alphabet shares.

• Businesses rewarding employees may consider non-voting or redeemable shares.

The most important thing is to choose a structure that reflects your plans and gives everyone involved a clear understanding of their rights.

It can likewise be beneficial to speak with company formation experts if you’re new to share structures and need impartial advice. 

Can you have more than one share class?

Yes, a UK limited company can have more than one share class.

While many small businesses begin with a single class of ordinary shares, companies are free to create multiple share classes if they need a more flexible ownership structure. Having more than one share class allows you to separate different aspects of ownership, such as control, profit entitlement and investment rights.

For example, a growing business may have:

• Ordinary shares for founders, giving them voting rights and control over company decisions.

• Preference shares for investors, providing priority access to dividends or company assets.

• Non-voting shares for employees, allowing them to benefit financially from the company's success without influencing business decisions.

This flexibility can become increasingly valuable as a business develops. share classes allow changes to happen without completely restructuring the company.

However, having multiple share classes also creates additional responsibilities. Each class must have clearly defined rights, and these should be recorded properly within the company's Articles of Association.

For most new businesses, keeping the share structure simple is usually the best approach. Introducing multiple classes of shares should be based on a genuine business need.

Can you change your share classes after incorporation?

Yes, it is possible to change your company's share structure after incorporation.

Businesses evolve over time, and the share structure that suited the company when it was first created may not always be suitable as the business grows.

A company may decide to introduce a new share class when:

• Bringing in external investors.

• Rewarding employees.

• Changing ownership between family members.

• Giving certain shareholders different rights.

• Preparing the company for future growth.

Can one person own different classes of shares?

Yes, an individual shareholder can own more than one class of share if the company's structure allows it.

For example, a director may hold ordinary shares with voting rights and another class of shares with different dividend rights.

Common mistakes when choosing share classes

Choosing a share structure is an important part of setting up a limited company, but it is also an area where new business owners can easily make decisions without fully understanding the long term impact.

While there is no requirement for every company to have a complicated ownership structure, taking time to understand how shares work can prevent problems further down the line.

Assuming every shareholder should have the same shares

Many founders automatically split shares equally between shareholders because it appears fair.

However, an equal split does not always reflect the value each person brings to the business..

For example, one founder may provide most of the initial investment, while another contributes more time, skills or industry experience.

Before issuing shares, founders should consider:

• Financial contributions

• Responsibilities within the business

• Future involvement

• Decision making expectations

Giving away too much control too early

A common mistake is focusing only on ownership percentages and overlooking voting rights.

Someone who owns shares may have significant influence over company decisions depending on the rights attached to those shares.

This becomes particularly important if you plan to bring investors, employees or additional shareholders into the business.

Giving away shares at the beginning can affect your ability to make decisions later, so you should carefully consider both the financial and control implications of your share structure.

Creating unnecessary complexity

Some founders create complicated structures because they believe they are required, when a simple ordinary share structure would achieve everything they need.

Ordinary shares provide a clear and effective way to divide ownership when you’re starting out.

The best share structure is the one that supports how your business actually operates.

Not thinking about future growth

Your business may look very different in five years compared to the day you incorporate. Although it is impossible to predict every change, it is worth considering questions such as:

• Will you want to bring in investors?

• Could employees become shareholders?

• Will ownership need to be transferred in the future?

• Are you building a family business or a large corporate entity?

Failing to document shareholder rights clearly

A share structure only works effectively when everyone understands what their shares entitle them to.

Shareholders should understand:

• Whether they can vote

• Whether they can receive dividends

• What happens if the company is sold

• How shares can be transferred

These details should be clearly recorded within the company's Articles of Association and any additional shareholder agreements.

Choosing your structure when registering a limited company

At 99p Company Formations, we make setting up a limited company straightforward, helping you complete the essential steps needed to start trading.

Whether you are creating a simple one person company or setting up a business with multiple shareholders, choosing the right share structure from the beginning can help you build a stronger foundation for the future. If you are unhappy with your share structure later down the line, we can implement shareholder changes on your behalf.

Our company formation service helps you register your business quickly and easily, giving you the confidence that your company has been set up correctly from day one.

Ready to start your business? Register a limited company with 99p Company Formations today.