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Where Taxpayers and Advisers Meet

Difference between 'A' and ordinary shares????

Newbie
Posts:31
Joined:Wed Aug 06, 2008 3:31 pm

Postby Newbie » Tue Mar 14, 2006 8:19 am

Hello,

Can anyone help me with advice on the difference between A shares and ordinary shares.

I have a 50% equal holding in a company with my partner who is actually holding the position of MD. As I am not working within the company he has proposed a difference between his having 'A' shares which would effectively cover his working role in the company. If he holds 'A' shares will there be any difference in voting rights or a final split if we sell the company?
Thanks in advance

hashman
Posts:1277
Joined:Wed Aug 06, 2008 3:31 pm

Postby hashman » Tue Mar 14, 2006 8:28 am

Check the company's Articles of Association.

But in general, there will be some difference created in the two classes of shares - in this way it enables, for example, dividends to be paid only to one class of shareholder. It may also cover what happens on a liquidation of the company, and it may cover voting matters.

Newbie
Posts:31
Joined:Wed Aug 06, 2008 3:31 pm

Postby Newbie » Wed Mar 15, 2006 6:32 am

Hi Hashman,

Thanks for the advice.

I will be reviewing the Articles of Association when next visiting our accountants however I am still looking for a basic definition of each class of share.

The situation is this:
My partner is currently MD within the company and is drawing a salary however the shares are owned 50/50. As selling of the company is an option we would like to explore our accountants have advised that he no longer draw a salary to make the company more profitable on paper. They have suggested that he have 'A' shares while I have ordinary ones to compensate for his salary rights.

My worry is:
We own a property through the company and if we come to sell or the company goes into liquidation would everything be divided equally?

Thanks for any advice!

hashman
Posts:1277
Joined:Wed Aug 06, 2008 3:31 pm

Postby hashman » Wed Mar 15, 2006 7:00 am

The point I was trying to make is that the rights attached to shares are whatever you want them to be (more or less). There is no definition except that both claases of share (and others) may be regarded as part of the 'ordinary share capital' of the company.

As I tried to indicate, this is all controlled by the Articles - these are the internal rules of the company and will set out what right attach to different classes of shares. There are many possibilities in practice.

Your accountants presumably have it in mind that if the company becomes more valuable then you both stand to make a larger capital gain on selling the company (selling the shares that is). Business asset taper relief at 75% is presumably available to in effect exempt most of the gain and then you have your annual exemptions (currently £8.500).

They also presumably intend to make his shares more valuable than yours (as you say - to compensate him for the unpaid work he will be doing for the company) and that is why they have proposed two classes of shares in place of one. Speak to the accountants - they will be able to reassure you I am sure.

Newbie
Posts:31
Joined:Wed Aug 06, 2008 3:31 pm

Postby Newbie » Wed Mar 15, 2006 7:16 am

Thanks again Hashman,

Guess the next stop is the Accountants but I feel a little more prepared!!

Thanks again ;)


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