There are a number of reasons why creating multiple share classes (usually known as A and B shares, etc) in your company might be desirable, such as:

- it gives you more control over the amount and timing of payment dividends due to each type of shareholder;
- it enables you to ensure that one class of shareholders has improved voting rights or no voting rights;
- it means you can decide that some shareholders will have a limited or no right to a return of capital on winding up;
- it also enables you to award a higher priority to the rights of one class of shareholders, in the sense that you are able to give them a fixed dividend or a return of capital ahead of other shareholders.

It is also possible to form a company with various share classes from incorporation. This service is available from the more sophisticated company formation agents.

The rights attached to a particular class of shares do not depend necessarily on the name you give to that class, so the names can be misleading. Over the years, though, certain norms have developed in the names of share classes. For instance, it is typical to use the name 'preference shares' to refer to shares that you want to receive certain privileges (such as the right to a return of capital ahead of other shareholders or to receive fixed dividends). A standard naming practice when making relatively minor distinctions between shares with similar rights (distinctions such as the ability to declare a different dividend on each class) is to divide the shares into 'A' ordinary, 'B' ordinary, etc classes. They are also referred to as A and B shares.

All classes of share, be they A and B shares, preference shares, or any other class, will not be considered to have separate rights unless you adopt appropriate Articles of Association. Model form Articles are not sufficient when creating a new class of share. The appropriate Companies House Form SH08 must be filled and processed, but alone it is not sufficient. It takes the experience and skill of a specialised professional to draft Articles of Association.
Unless the existing Articles impose a stricter requirement, a special resolution of the members is required in order to adopt new Articles of Association. You will have to complete and file Form SH08, giving notice of name or other designation of shares at Companies House. You may also need to obtain the consent of the existing classes of shareholder, should your company already have A and B shares or multiple share classes.

As well as introducing new classes of share it is also possible to issue some shares in the new class immediately after creating that class. However, appropriate Directors and Shareholders resolutions have to be passed and allotment of shares (Form SH01) must be filed and returned to Companies House. The form SH01 requires particular details about the allotment, about the company's revised share capital and the rights associated with each class of shares (the 'prescribed particulars').

Your options when issuing shares or creating new share classes could be affected by any agreement that has been between shareholders. For example, an Article of Association could include pre-emption rights, whereby a company is obliged to offer new shares to existing shareholders in proportion to the amount of shares they already hold.

Shareholders agreements and the Articles include rights and restrictions relating to the transfer of shares, and these must be complied with, or amended. Some situations resulting from the creation of a new class of shares can demand that certain restrictions be altered. For instance, when a member of a class with a right to a dividend decides to sell her shares, her co-members might want to restrict other class members without dividend rights from getting hold of those shares.

It is worth repeating that any amendment to class rights of shares requires consent from the shareholders concerned. The main reason for this is that shareholders whose interests are affected by the creation of a new class of shares, or by a change in the rights attaching to an existing class could have legal remedy. Obtaining the unanimous consent of all shareholders to the introduction of the new share classes, or to the alteration to class rights, can overcome lots of these problems. Having multiple share classes for your company may make it more tax efficient, so it is worth asking your tax advisor about this.

To sum up, there are a few thing that you must do when considering A and B shares or multiple share classes for your company:

- think about the rights that are attached to each class;
- pass the relevant resolutions directors and shareholders;
- file the appropriate Companies House forms;
- amend your Articles of Association, or adopt new Articles.

The information provided in this article is not exhaustive or tailored to your individual circumstances. It is intended as a general guide only.