Alphabet Shares – It’s as easy as ABC

2nd February 2024

Partner, Helen Mather discusses alphabet shares and the pitfalls that come with them.

The share capital of companies can consist of more than one class of shares (often called alphabet shares), allowing a business to become more dynamic and flexible when distributing profits or capital to its shareholders or when addressing how decisions are made. However, there are several pitfalls to be aware of when separating shares in a company into different share classes.

We would, always advise that you consult a tax specialist before considering adopting alphabet shares for tax efficiency.

What are Ordinary Shares?

Where a company has one class of shares, these are typically referred to as ordinary shares.
These shares carry no special privileges and shareholders holding ordinary shares in a company all have the same rights attached to their shares with the percentage entitlement to voting and economic rights equating to the percentage of shares held. Typically, these rights are as follows:

  1. the right to dividend (a distribution out of the profits of the company);
  2. the right to attend and vote at general meetings; and
  3. the right of a return of surplus capital on winding-up or a sale.

The number of ordinary shares that an individual shareholder holds therefore impacts on (i) the amount of dividend return they receive, (ii) their voting rights, and (iii) their return of capital such as in the event of the company being wound-up or sold.

What are Alphabet Shares?

As opposed to everyone holding ordinary shares, shareholders can hold different classes of shares within a company, commonly referred to as alphabet shares. Typically, these different shares are denoted as A shares, B Shares, C Shares (and so on).

Some of the benefits of using alphabet shares are:

  1. Payment of Shareholder dividends / capital return at different rates: alphabet shares can allow companies to pay shareholders dividends at different rates amongst shareholders holding different share classes or to pay dividends to some shareholders to the exclusion of others with different share classes. The same applies to returns of capital.

This can be beneficial if, for example, an investor shareholder has injected capital into the company and they want specific rights included in their shareholding to ensure that their investment is secure or they receive a preferential return. Alphabet shares can also be utilised to facilitate and manage dividends or capital returns in the event of a joint venture or merger or to reward shareholders differently to each other (such as to reflect different levels of contribution to the joint venture or involvement in the day to day running of the business).

  1. Employee incentivisation: alphabet shares can be issued to employees as part of a scheme of employee incentivisation, encouraging loyalty and engagement in the company. The rights attaching to the shares allotted will vary but they can be non-voting and there will more often than not be a provision for a compulsory buyback or transfer of the shares in the event that the employee leaves the company.

Pitfalls when adopting alphabet shares

A key point to be aware of is that a class of shares will not be validly created merely by giving a different name to a class of shares and setting out the rights that you would like to apply to them on your annual confirmation statement or other Companies House forms.

In order to ensure that the alphabet shares are properly created, companies must update their articles of association (to include the share classes and the rights attaching to them) and deal with the relevant board and shareholder consents and approvals needed to properly amend the articles of association and create the new class(es) of shares.

You won’t be able to pay dividends or capital returns in different amounts to holders of different share classes or to holders of some class(es) of shares to the exclusion of others unless the ability to do so is set out specifically, in the articles of association. It won’t be sufficient to simply have different share classes named in the articles of association – the rights allowing for the different or flexible treatment as between the share classes must be set out in detail in the articles of association.


Alphabet shares can provide significant advantages to companies, enabling them to diversify the way they manage economic returns and voting but they must be implemented properly to avoid any invalidity or issues with their implementation further down the road.

If you are considering adopting alphabet shares, our Corporate team have significant experience and can assist you with advising and drafting the documents necessary to create and issue alphabet shares, making the process as easy as A B C.

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