NIM06802 - Class 1 NICs: Employment - Related Securities: Shares - Overview

Meaning of shares

There is no statutory definition of a share. It therefore has its ordinary meaning which is a share, that is a definite portion, of a company’s share capital. A company’s share capital consists of the funds subscribed to the company by its members; that is the shareholders. Shares represent a shareholder’s interest in, or ownership of, the company.

Shareholders

A shareholder has three principal rights; these are the right to:

• receive dividends
• vote at company meetings
• share in the company’s assets if the company is wound up.

Classes of shares

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

• preferential rights to a fixed dividend only
• restricted voting rights at company meetings
• preferential rights over ordinary shareholders to a distribution of the company’s assets in a solvent winding up.

Why companies issue shares of different classes

There are a number of reasons why companies issue shares of different classes. Often, they are related to the degree of risk an 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, with redeemable preference shares, the holder of the shares is entitled to a fixed return and can get their money back by the company redeeming the shares. Because of the minimal exposure to any risk a shareholder’s right to participate in the affairs of the company is very limited and, for instance, he/she may have no voting rights or dividends.