Understanding Non-Voting Shares UK: A Friendly Guide

For those planning to invest in a limited company, understanding the different types of shares available is crucial. One such type is non-voting shares, which offer certain advantages over other types of shares. These shares are also commonly known as ‘ordinary shares without voting rights’.

The shares in a limited company represent ownership in the company, with each shareholder being a part-owner. Non-voting shares, as the name suggests, do not provide the shareholder with any voting rights in the company’s general meetings. This means that the holder of such shares cannot vote on important matters such as electing directors, amending the company’s articles of association, or major changes in the company’s business operations.

However, non-voting shares do offer certain advantages. For instance, they usually receive the same dividend payments as other share classes without the shareholder being responsible for the day-to-day running of the business. This can be useful for investors who want to be involved in a company’s success without having an active role in its management.

There are several different types of shares available in a limited company, including ordinary shares, preference shares, and redeemable shares, each with its own unique features. Voting rights also vary based on the class of shares held, with some classes carrying more weight in decision-making than others.

Key Takeaways:

• Non-voting shares in a limited company do not provide the shareholder with any voting rights in general meetings.
• Non-voting shares offer certain advantages, such as receiving dividend payments without being responsible for the day-to-day running of the business.
• There are several types of shares available in a limited company, each with its own unique features.
• Voting rights vary based on the class of shares held, with some classes carrying more weight in decision-making than others.

Types of Shares in the UK

When it comes to shares in a limited company, there are different types and classifications available. The type of share a shareholder holds can determine their rights, voting power, and the dividends they receive.

The most common type is the ordinary share, which is also known as a common share. These shares carry voting rights and allow shareholders to participate in decision-making processes. Ordinary shares are further divided into different classes, each with its own characteristics.

Another type of share is non-voting shares. As the name suggests, these shares do not carry voting rights and are often used to raise capital without diluting the control of existing shareholders.

Preference shares are another type that carries certain preferential rights, such as the right to receive fixed dividend payments before ordinary shareholders. These shares do not generally carry voting rights but may have the ability to vote on particular issues that affect their rights.

Redeemable shares are often used for company formation, allowing a company to issue shares that can be bought back by the company. Alphabet shares and management shares are other types of shares available for specific purposes.

Deferred shares are a type that carries no entitlement to dividend payments until a certain level of profit has been reached, which can make them an attractive option for investors seeking long-term growth potential. Overall, there are many different classes of ordinary and non-ordinary shares available, each with unique characteristics and advantages.

Voting Rights and Share Classes

When a company decides to issue shares, it has the power to determine the rights attached to those shares. These rights can include the ability to vote on certain matters within the company, such as electing directors or approving major decisions.

The company may also choose to issue non-voting shares, which do not carry any voting rights. These shares are often used to raise capital without diluting the control of existing shareholders, or to provide an incentive for employees or investors without giving them a say in the running of the company.

Each share may have different rights attached to it, depending on the company’s articles of association. For example, one share may give the holder one vote per share, while another share may have no voting rights at all.

When a new share is issued, the company may decide what rights it will carry. It may also choose to issue a different class of share, such as ordinary shares or preference shares, each with its own set of rights and priorities.

In general, ordinary shares give the holder a say in the running of the company, while preference shares prioritise the payment of dividends over voting rights. Non-voting ordinary shares are usually issued to maintain control of the company while providing additional funding.

The company may also choose to create different share classes, each with its own specific rights. These different share classes can be used to balance control and financing needs or to incentivise certain stakeholders. For example, management shares may be issued to incentivise key employees, while deferred shares may be issued to control the distribution of dividends.

Redeemable Shares and Company Formation

When a company is formed, it can issue shares to raise capital. Shares are usually issued in the form of ordinary shares, which carry voting rights and entitle the shareholder to one vote per share. The company can also issue other types of shares, such as preference shares, non-voting shares, and redeemable shares.

A company can be limited by shares, which means that the liability of its shareholders is limited to the amount of capital they have invested in the company. This is in contrast to a company limited by guarantee, where the liability of its members is limited to a predetermined amount.

Redeemable shares are shares that can be bought back by the company, either at a predetermined time or at the request of the shareholder. They are usually issued as preference shares, which means that they have a higher claim on the company’s assets in the event of liquidation. Redeemable shares are often used in employee share schemes, where shares are given to employees but can be redeemed if the employee leaves the company.

When a company issues shares, the rights attached to the shares must be set out clearly. For example, a company may create different classes of ordinary shares, with different rights attached to each class. The most common practice is for each ordinary share to carry one vote per share, but companies may create different classes of ordinary shares with different voting rights.

When setting up a company, it is important to consider the different types and classifications of shares that will be issued. For example, a company may issue B shares, which are usually non-voting shares that are used to raise additional capital without diluting the voting power of existing shareholders. The rights attached to the shares will depend on the terms that the company sets out in its articles of association.

Employee Ownership and Share Schemes

Companies often issue shares to employees, especially those in senior management or key positions. These shares can be given as an incentive to reward good performance or as part of an employee share ownership plan.

Shares are usually issued to employees in the form of non-voting shares, which means that they do not carry any voting rights. However, they do carry the same rights as other shares, such as the right to receive dividends and to benefit from any increase in the value of the company.

Redeemable preference shares are often used for employee share schemes. These shares carry a fixed dividend payment and can be redeemed by the company at a later date. This means that the company can buy back the shares from the employee, usually at their original purchase price.

Existing shares can also be given to employees as part of a share scheme. This is usually done by the company transferring some of its existing shares to the employee, either for free or at a discounted price.

It is important to note that if the company is wound up, employees who hold shares will rank after other creditors in terms of receiving a distribution of any remaining assets.

The terms of the share scheme will determine how shares are issued to employees and how they can be redeemed. These terms can be set by the company and will depend on the individual circumstances of the business.

Control and Redemptions of Shares

Shares are generally issued in many different classes, and a company can create shares that are bought back by the company. The rights attached to shares can help shareholders retain control of the company, based on their percentage ownership. Redeemable shares are allowed and may only be redeemed after a specific period or event, usually out of accumulated profits. The company may only redeem the shares if they have already bought back other shares.

Shares that are not bought back by the company can be transferred freely, subject to any restrictions in the company’s articles of association. If a company has more than one class of share, the rights may be different for each class. The shares with the most rights in the company are usually called “ordinary shares,” and these shares give the shareholder control of the company.

If a shareholder wants to retain control of the company, they can buy more shares until they have a controlling interest, typically at least 50% of the total shares. If a shareholder wants to lose control, they can sell their shares or issue new shares to dilute their percentage of ownership.

Share Issues and Value Calculation

In a company, shares are often used as a means of raising capital. When a company issues new shares, the nominal value of all the shares is increased and the value of all shares issued can be calculated. This value is important as it determines the company’s total capital and the allocation of dividends.

Shareholders who own one or more shares in a company are entitled to receive dividend payments from the company’s profits. Redeemable shares are often issued as a way of raising capital, however, these shares are usually subject to specific terms, such as being bought back by the company at a later date.

If an employee leaves the company, any shares they hold may be subject to specific terms regarding their redemption. Ordinary shares may be divided into different classes, each with their own specific rights and limitations.

The value of shares in a company is determined by various factors, such as the company’s profitability, assets, and liabilities. The number of shares a company can issue may also be limited, depending on the company’s capital and requirements. When shares are to be redeemed, the nominal value for such shares is usually the amount paid for them, unless specific terms have been set by the company.

Overall, shares in a company play an important role in raising capital and determining the value of the company. The allocation of shares and the specific terms of redemption can have significant implications for both the company and its shareholders.

Conclusion

Understanding non-voting shares in the UK and the various types and classifications of shares is essential for anyone looking to form a company. It is important to note the terms that the company sets, including immediate payment for shares and the possibility of shares being taken back.

The existence of many different classes of ordinary shares and how they rank after preference shares is also a crucial consideration. Non-voting ordinary shares are usually given, and shares may be created by the company to maintain control of the running of the company.