UK company formation with a single class of shares is straightforward and can be completed by any company formation agent. It is also possible to form a company with multiple classes of share. This is a more sophisticated process, which is usually provided by corporate law firms and providers of company secretarial services.

There are a number of reasons why you might want to form a company with more than one class of share. You may, for example, want multiple classes so that:

- you have total control over the amount and timing of dividend payments to each shareholder,
- certain shareholders have no voting rights or enhanced voting rights,
- certain shareholders have no right to a return of capital on winding up,
- certain shareholders receive preferential treatment such as the right to a fixed dividend or a return of capital ahead of other shareholders.

Ordinary shares are often divided into 'A' ordinary, 'B' ordinary, 'C' ordinary, etc classes if those classes are to have broadly the same rights, with slight variations such as having the ability to declare a different dividend on each class. As a further example, if a class of shares receives preferential treatment such as the right to fixed dividends or return of capital ahead of other shareholders then those shares are normally labelled as 'preference' shares. It should be noted that the name of a share class is intended to be descriptive only, it does not dictate the rights attached to those shares and can be misleading - beware.

There may be tax efficiencies in having multiple share classes for your company; you should consult your tax adviser in this regard. If you are forming a company yourself, rather than through a solicitor, company secretarial services provider or a company formation agent then please note that the details of the rights attached to each class of share will need to be stated on form IN01 (company formation application).

Forming a company with multiple share classes or creating a new share class after formation requires the adoption of appropriate Articles of Association setting out the rights of each share class. Standard model form Articles of Association are not appropriate. Please note that drafting Articles of Association is a specialist skill which should be undertaken by an experienced professional.

Creating a new class of share after formation requires a special resolution of the members (unless the Articles impose a stricter requirement) to adopt new Articles of Association. A form SH08 (notice of name or other designation of shares) will also need to be filed at Companies House. You may also require the consent of the holders of existing classes of share. If an allotment of shares happens at the same time (as is often the case) then appropriate Board and Members resolutions will need to be passed in addition to filing form SH01 (return of allotment of shares). Form SH01 requires information regarding the allotment, the revised share capital of the company and details of the rights attaching to each class of shares.

If the shareholders of a company enter into a shareholders agreement on forming the company, or subsequently, it may contain restrictions on creating additional share classes or issuing shares. The Articles of Association may also contain relevant restrictions, such as pre-emption rights dictating that new shares must first be offered to the existing shareholder in proportion to their current holdings.

Any share transfer rights or restrictions in a shareholders agreement or the Articles will also need to be adhered to or amended. Going forward, such restrictions may have to be amended to account for the introduction of new share classes. For example, if a member of a class with voting rights wants to sell his shares, the remaining shareholders in that class may not want any shareholder currently holding non-voting shares to get hold of them.

When introducing a new class of shares, or altering the rights attached to an existing class, be aware that existing shareholders may have legal remedies available to them (such as a claim for unfair prejudice) if they are negatively impacted by the alteration or introduction of the new class. In addition please note that the amendment to rights attached to a particular class of shares requires the consent of that class. Seeking the unanimous consent of all shareholders to the introduction of alteration to share classes avoids many of the potential issues.

In summary ,when considering UK company formation with multiple share classes, or when introducing new classes in respect of an existing company, first consider the rights that each class will bear, pass appropriate board and member resolutions, amend the current or adopt new Articles of Association, and make the appropriate filings at Companies House.

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