Implementation of different classes of shares can improve flexibility over returns on investment (or dividends).
Most limited companies have just one class of shares (for example “Ordinary shares”). In instances where the company has built up a healthy reserves pool and wishes to pay out dividends, any dividend declared would need to be paid out to all holders of the same class of shares depending on their proportionate shareholding.
As some shareholders will have different cash requirements to others year on year, this is not always feasible. The only method by which this could be resolved would be to prepare dividend waivers – which are heavily challenged by HMRC.
An alternative could be to implement different classes of shares denoted alphabetically (for example Ordinary A shares, Ordinary B shares etc). Utilising different classes of shares can enable a dividend to be declared and paid on one class of shares to the exclusion of others (or just at different levels) ensuring maximum flexibility over income received by shareholders.
There are some legal steps that require further careful consideration. We can provide taxation advice to demonstrate the implications and effect of this planning and engage with our trusted, experienced solicitors to ensure a smooth process.
