Alphabet Shares: Corporate Dos And Don’ts

What are alphabet shares?

Alphabet shares are different classes of ordinary shares labelled A, B, C and so on. The label itself is not important; what matters are the specific rights attached to each class. By varying rights between classes, companies can tailor how dividends, voting power and capital returns are shared among different groups of shareholders. This flexibility is often used to reward management selectively, accommodate investors or separate economic rights from control.

Under the standard Model Articles for private companies limited by shares, all ordinary shares generally rank equally for voting, dividends and capital on a winding up. Alphabet shares deliberately depart from that “one size fits all” position. For example, a company might allow A shares to receive discretionary dividends while B shares receive none, or give C shares no vote except on certain reserved matters.

Issuing alphabet shares is straightforward in principle but easy to get wrong in execution. We have therefore set out some helpful dos and don’ts.

Alphabet shares: corporate dos

• Do define each class’s rights clearly in the articles of association, including rights to dividends, voting, redemption and distributions of capital, whether on a winding up or otherwise.
• Do confirm that the board has the necessary authority to allot the relevant alphabet shares or vary the rights attached to existing shares. Obtain any required shareholder consents and, where necessary, the disapplication of pre-emption rights.
• Do update the articles and any shareholders’ agreement together, ensuring they remain consistent with the intended rights attached to the alphabet shares.
• Do file the necessary forms, resolutions and updated articles at Companies House. Ensure that the prescribed particulars of the shares are accurately stated in any filings that require the share rights to be described, such as Form SH01.
• Do keep the company’s statutory registers up to date. The Economic Crime and Corporate Transparency Act retains the requirement for companies to maintain a register of members.

Alphabet shares: corporate don’ts

• Don’t rely on class labels alone. Without clear drafting in the company’s articles of association, A, B or C designations on share capital forms will not, by themselves, be effective in enforcing the rights of the shares.
• Don’t assume dividends can be paid selectively unless the articles or shareholders’ agreement, as applicable, expressly permit dividends to be declared on a class-by-class basis.
• Don’t overlook or delay Companies House filings. Late or inaccurate filings can lead to penalties, while an unclear share history can complicate future investment or sale transactions.
• Don’t let the shareholders’ agreement drift out of sync with the articles. Inconsistencies create uncertainty and increase the risk of a dispute.

Key takeaway

Alphabet shares can be a highly effective way to balance control and economic rights, but they only work well when the rights are clearly drafted, properly approved and supported by accurate filings and up-to-date registers.