A ordinary shares, B ordinary shares, etc. For example, different shareholder rights could be given to each of the founders, investors and employees or directors.

The shareholder rights capable of variation include dividend rights, voting rights and capital rights. In all cases the use is the same — to provide different rights to different categories of shareholders. The use of alphabet shares is widespread in the UK.

We have designed alphabet shares for a range of companies in different sectors where for different reasons the key shareholders wanted to preserve control.

In many cases the founders are the last to be paid. Employees and directors receive fixed salaries reflective of the commercial rate. Or, founders may retain profits for investment and not take out surpluses. The founders may well want to reward key employees and directors with shares. There are a wide variety of tax efficient ways to reward employees.

Investors often require a special class of share is created. Rights can be built into shares held by investors to hedge the risk of investment.

This is particularly common in start up businesses.

Care is required where the investment is under the SEIS or EIS tax relief schemes for investors. Alphabet shares can be used to pass ownership of a business to family members.

For example, a new class of E shares — freezer shares — could be issued to the next generation. The E shares could provide:. Sometimes, the shareholders bring in Mr New Talent to get the business ready for sale.

The intention is the premium reward is made when the business is sold.

Share repurchase - Wikipedia

Growth sharesanother name for alphabet shares, can fit the bill. This means that employees and directors can be voted tax free payments. If you award shares to employees or directors and pay them dividends to avoid tax on bonuses, HMRC may demand the employer pays PAYE and National Insurance. HMRC has a vast array of anti-avoidance measures at its disposal. The key is to consider and document these reasons before voting dividends on different classes of shares.

If HMRC challenges the payments, a lack of records counts against buyback of shares example. Yet, the paperwork need not be complex. Nevertheless, it must be prepared for the relevant board meetings. This includes the board minutes which approved the creation of new shares and the dividend payments. If the recipient pays at least the tax market value, there is no benefit hdfc forex plus corporate card login kind, so no tax to pay on receipt of the shares.

The benefit here to alphabet shares is tax market value is often much lower than the actual commercial market value. Private company valuations are not straightforward.

Valuations involving alphabet shares or restricted shares, freezer shares, growth shares and flowering shares can be more complex. This is because each share class enjoys different rights and restrictions bringing different values.

The valuation determines the deemed benefit on which employees or how much do bail bond agents make pay income tax and sometimes National Insurance. If shares are readily convertible assets they count as hdfc bank forexplus card application form subject to PAYE and National Insurance.

Readily convertible assets means the shares determinants of stock market volatility and risk premia be sold on a recognised stock exchange, or trading arrangements exist to covert the shares into cash. So, if an employer creates a guaranteed exit plan, e. If shares are not readily convertible assets, the employer does not apply PAYE. However, employees pay income tax under self-assessment by the 31st January after the tax year.

Buyback

National Insurance is not due on the issued shares, if there are no trading arrangements. Most private company shares are not readily convertible into cash as there is no market for the shares. The rights attaching to any class of shares including alphabet shares, restricted shares, freezer shares, growth shares or flowering shares have to be set out in the articles. You may need to pass an appropriate resolution to grant the board authority to:.

A shareholders agreement is a private agreement amongst the shareholders. All shareholders must agree to amend the shareholders agreement. We do work through requirements and recommend workable clauses for the actual situation. What is best, depends upon the personalities and objectives behind the creation of alphabet shares.

Often one or two shareholders, who together own the company outright, are used to making unfettered decisions.

There is a culture change when additional shareholders have voting rights. Minority shareholders often enjoy protections embedded in the shareholders agreement and articles off association.

Private companies that create new share classes risk creating complications for existing shareholders. For instance the result is shareholder disputes over minority shareholder rights.

Helen Curtis is a member of the commercial team. Helen designs alphabet share structures and has a particular skill in drafting bespoke articles of association. We implement a wide range of solutions for a wide range of business needs. If you are considering creating different classes of shares or different rights attached to shares, Gannons offer affordable, experienced and practical help.

Why not call or email me now to arrange an informal discussion