If you run a limited company, you might assume all shares are created equal. But that doesn’t have to be the case — and in many small businesses, it shouldn’t be.
Creating different types of shares, known as alphabet shares (like A shares, B shares, C shares etc), can offer you flexibility, control, and some useful tax planning options. Here’s what alphabet shares are, why they might be useful, and what to watch out for.
What Are Alphabet Shares and How Do They Work?
Alphabet shares are just ordinary shares given different labels (A, B, C, etc.) so the company can give each class different rights, for example:
- Who gets dividends (and how much)
- Who has voting power
- Who gets a share if the company is wound up
This kind of structure isn’t just for big corporations. It can be hugely useful for family businesses, start-ups and growing companies.
Why Would You Want to Use Them?
Here are some real-world examples where alphabet shares have helped our clients:
- Spouse income splitting
You can issue a class of shares to a spouse and pay them dividends (as long as they’re a shareholder), potentially making use of their personal tax allowance.
- Rewarding employees
Want to give a key team member a stake in the business? You can use non-voting shares that entitle them to dividends without giving away control.
- Succession planning
You can involve children or future owners now with minimal rights, and update the structure later as their role changes.
- Dividend flexibility
If your business has A/B/C shares, you can declare different dividends for each class — useful if shareholders have different income needs or tax positions
A Few Things to Watch Out For
Setting up alphabet shares isn’t a one-and-done job — there are a few common pitfalls we see:
- Not updating Companies House when new shares are issued
- Forgetting to issue dividend vouchers — these are legally required!
- No shareholders’ agreement, which can cause confusion or disputes later
💡 Our advice: If you’re using alphabet shares, always make sure your shareholder agreement is up to date and clearly sets out who gets what and when.
Do I Need to Change My Company Articles?
A quick word on Articles of Association: If your company was set up using standard Model Articles (as most small companies are), you’ll likely need to tweak these before creating alphabet shares. That’s because the default setup usually assumes just one class of shares.
To introduce A, B, or C shares with different rights (like voting or dividend rules), you’ll need to update your Articles to define those rights properly. This involves drafting the changes and passing a special resolution (which needs 75% shareholder approval). It’s not a huge job, but it’s one that needs to be done right — and filed with Companies House.
You can read more about Model Articles on GOV.UK.
So — Are Alphabet Shares Right for You?
If you:
- Want more control over how profits are paid out
- Are thinking about future succession
- Are involving a spouse or employee in your business
…alphabet shares could be a simple but powerful tool. But as with anything in business, getting the structure right from the start is key.
Need Help?
If you’d like to chat through whether alphabet shares could work for your company — or if you’re already using them and want to make sure things are tidy and compliant — just drop us a message. We’re always happy to help.