Creating different classes of shares, often referred to as “alphabet shares” (e.g., A shares, B shares, C shares, etc.), provides flexibility in distributing dividends. This approach allows companies to tailor dividends to individual shareholders as directed by the director(s) based on their specific needs or shareholder rights.
Key Points about Alphabet Shares:
Alphabet shares are categorized into different classes, such as A, B and C shares. Each class may have different rights attached to them, particularly regarding dividend distribution.
- The company can declare different dividend amounts for each class of shares. This flexibility allows companies to distribute profits in a tax-efficient manner or to reward certain shareholders differently.
- Voting rights may vary between different classes of shares. Some classes may carry more voting power, while others might have limited or no voting rights.
- Directors and key employees can be incentivized through dividends on their specific class of shares, aligning their interests with the company’s performance.
- Alphabet shares can be used for tax planning.
Example Scenario:
Following a restructure the company creates two additional share classes to allow for the directors to issue dividends to shareholders as follows:
A shares receive a dividend of £2 per share.
B shares receive a dividend of £1 per share.
C shares receive a dividend of £3 per share.
This structure allows for shareholders to receive different amounts of dividends based on the company’s performance and their individual financial planning needs.
Conclusion:
Alphabet shares offer a flexible way for companies to manage dividend distributions, especially for family-owned businesses. However, it is crucial to set up the structure correctly, with appropriate advice, to ensure compliance and effectiveness.
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Information for readers: This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore, no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.
