Also known as: what are preferred ordinary shares, preference shares explained, types of share class, ordinary shares vs preference shares, A and B ordinary shares, non-voting shares, redeemable shares, cumulative preference shares, participating preference shares, what rights do shares have.

Important: This guide is general information only. We can't give legal, tax or specific advice about which shares your company should issue. The rights attached to any share class are set by your company's articles of association (and any shareholders' agreement), so always check those documents and speak to a solicitor or accountant before creating or issuing a new class of shares.

Most companies limited by shares start with a single class of share, normally called ordinary shares. A company can create other classes with different rights. The class is what carries the rights, so two shares with the same nominal value can still be treated very differently if they are in different classes.

The main rights that can differ between classes

• Voting: whether the share carries a vote, and how many votes.
• Dividends: whether the holder is paid dividends, in what order, and whether they are fixed or variable.
• Capital: what the holder receives if the company is wound up or sold, and in what order.
• Redemption: whether the company can, or must, buy the shares back.

Common types of share

Ordinary shares. The default class. Ordinary shares normally carry voting rights, a right to receive dividends when the company decides to pay them, and a right to a share of whatever is left if the company is wound up. Companies often create separate ordinary classes, commonly called A ordinary and B ordinary shares, so that dividends can be paid to one class and not another, or so that voting rights differ.

Preference shares. Shares whose holders have a priority over ordinary shareholders, most often for dividends, for return of capital, or for both. A preference dividend is typically a fixed amount or percentage. Preference shares often carry limited or no voting rights, although this depends entirely on how the class is set up. Some terms you may see:

• Cumulative: if the fixed dividend isn't paid in a year, it builds up and must be paid before ordinary shareholders receive anything later. Non-cumulative dividends don't build up.
• Participating: the holder receives the fixed preference amount and also shares further in profits or surplus. Non-participating holders don't.
• Convertible: the holder can, or must, convert the shares into another class (often ordinary shares) on set terms.

"Preferred ordinary shares". This isn't a separate legal category. People use it for an ordinary class that has been given some preference over another ordinary class (for example, a right to be paid dividends first), or loosely to mean preference shares. What it actually means in a particular company depends on how that class is defined in the articles.

Redeemable shares. Shares that the company can buy back (redeem) on terms set out when they are created, for example at a set date or at the company's or the holder's choice. A company can't be left with only redeemable shares, so it must also have non-redeemable shares. Redemption of shares has legal requirements for how it is funded, so take advice first.

Non-voting shares. Shares that give the holder economic rights such as dividends, but no say in company decisions. These are sometimes used where someone is to benefit from the company's profits without having control, for example family members or employees.

How this works in Inform Direct

Inform Direct records each class of share and its prescribed particulars (a description of the rights attached to the class). When you allot shares you can select an existing class or create a new one. Companies House needs the prescribed particulars for each class to describe the rights, such as voting, dividends, capital distribution and redemption. Wording such as "rights as set out in the articles" is likely to be rejected, so describe the rights.

• How do I create a new share class?
• How Do I Convert One Class of Shares Into Another?
• How Do I Allot Shares?

Remember that whether a new class with different rights is permitted depends on your articles of association, and creating one usually involves amending them. Inform Direct sells Enhanced Articles templates and provides a free special resolution template, but we can't advise on whether a particular share structure is right for you.