CG50203 - Definitions: different classes of share

Companies may issue different classes of share, for example, voting and non-voting ordinary shares, preference shares and deferred shares. The difference between the classes will usually be expressed in terms of differences in the three principal rights attaching to the shares. For example, a typical preference share will have

• preferential rights to a fixed dividend only (ie their dividend is paid in priority over variable dividends payable to ordinary shareholders)
• restricted rights to vote at company meetings
• preferential rights over ordinary shareholders to a distribution of the company’s assets in a solvent winding-up.

There are a variety of reasons why companies issue shares of different classes. Often they are related to the degree of risk the investor is prepared to take or the extent to which those who control the company are prepared to let others participate in the company. For example, redeemable preference shares are very similar in their commercial characteristics to loan finance: the holder of the shares is entitled to a fixed return and can get their money back by redeeming the shares. You may find this type of share is issued to financial institutions as part of a finance raising exercise. Because the shareholders have minimised their exposure to risk, their right to participate in the affairs of the company by voting at meetings and sharing in the growth of the company through the payment of ordinary dividends and return of capital will be correspondingly limited.

TCGA92/S104(3) provides `shares or securities of a company shall not be treated as being of the same class unless they are so treated by the practice of a recognised stock exchange or would be so treated if dealt with on a recognised stock exchange’.

A stock exchange lists shares or securities of the same class in a single listing. It is a question of fact whether the rules of a recognised stock exchange would list different types of share separately. If the shares are listed on a recognised stock exchange you should follow the practice of that stock exchange. If the shares are not listed you will need to consider the terms of the shares and apply stock exchange criteria to them. As a general rule, a stock exchange will treat shares as being of different classes, and list them separately, if they have different rights or other features which would affect their value. For example, partly paid shares would not be regarded as being of the same class as fully paid shares, see CG50207+. However, also see CG50207 if the balance of the subscription price is payable within six months of the issue of the shares.