Creating a New Class of Shares | P.A. Duffy & Co Solicitors

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Lough Neagh Litigation

Business Asset Purchase Agreements

Creation of New Classes of Shares

A company can choose to issue different classes of shares for various reasons including reducing debt, launching a new subsidiary, drawing investment and many other beneficial reasons. At P.A. Duffy & Co., our expert team will be able to ensure that your company’s share capital is correctly dealt with and that all other issues are correctly addressed to avoid any potential disputes regarding shareholder rights.

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When creating a new classification of shares, our legal team, who specialise in corporate law and governance, will ensure ease and understanding during the complex process. We will make sure your company restructuring is handled with care, serving the best interests of the company and its stakeholders.

Creating new classes of shares in Northern Ireland involves legal considerations that are essential for the proper functioning and governance of a company. Our expert team will guide your company through the legal complexities of creating a new class of shares, advising the company on the legal considerations while upholding the rights of the shareholders. These legal considerations include:

Shareholder Approval: Shareholders should be informed of the proposed changes and given the opportunity to vote on them. The exact process for obtaining shareholder approval may vary based on the company's existing articles and any applicable shareholders' agreements.
Amendment of Articles of Association: Creating new classes of shares typically requires amending the company's Articles of Association. Shareholders must approve these changes through a special resolution, usually with a 75% majority vote.
Financial Assistance Rules: The UK Companies Act 2006 restricts companies from providing financial assistance to others for the acquisition of their shares. Ensure that the creation of new share classes complies with these rules and other regulations of the Companies Act 2006.

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Types of Shares

Ordinary shares - Ordinary shares represent the most prevalent type of shares and are typically allocated to shareholders when no other share class is established. They entitle the holder to a portion of any declared dividends and a share of the company's assets if it undergoes liquidation.

Preference shares - Preference shares, as the name implies, typically hold priority in terms of receiving dividends over other share types. However, they frequently come with restrictions on the holder's voting rights. These shares are commonly issued when a third party is making an investment in a company without seeking involvement in its overall management.

Deferred shares - Deferred shares typically restrict dividend payments to shareholders until specific goals have been met or a predetermined timeframe has elapsed. These shares are often employed to motivate and retain important company executives by granting bonuses in the form of shares instead of cash. Importantly, these rewards are contingent upon the executives staying with the company for a specified duration.

FAQs

How creating new classes of share can benefit your company.

Creating new classes of shares can offer several benefits to your company, including:

Flexibility: Different classes of shares can be tailored to suit the company's specific needs. For example, a company can issue preferred shares to attract investors seeking fixed dividends or deferred shares to incentivise key employees.
Incentivising Employees: Companies can issue specific share classes, like deferred shares, to motivate and retain key employees. This can align their interests with the long-term success of the company.
Voting Rights: Creating multiple classes of shares can help maintain control within the company's founders or management, as some shares may carry limited or no voting rights.
Profit Distribution: Different share classes enable the company to distribute profits in a manner that suits its financial structure and objectives. For example, preferred shareholders receive dividends before common shareholders.
Shareholder Diversification: A company can diversify its shareholder base by accommodating various investor preferences, which can make it more attractive to different types of investors.
Risk Management: The creation of new share classes can help manage financial risk and protect certain assets or individuals within the company.

The ability to create distinct share classes allows a company to navigate various financial, operational, and strategic aspects in a manner that aligns with its unique goals and circumstances.

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