Choosing "Type of shares" when you register
When you register a company with shares, one question asks what type of shares the company will have: only ordinary shares, or ordinary and preferred shares. Most companies are fine with ordinary shares alone. You only add preferred shares when you want one group of shares to be treated differently from the rest: paid before the others, or returned its money first, or voting differently.
This leaflet explains what makes a share "preferred", the five rights you set for each class, and how the form asks for them. For each preferred class you give a name, a number of shares and a value, and you answer five short questions that set its rights. From your answers the form writes one plain line that sums up the class, and that line is written into your articles of incorporation.
What "preferred" means
By default, every share in a company is equal. A preferred share is one whose terms depart from that default, given a preference over the ordinary shares.
The Companies Act sets a starting point. Unless the articles say otherwise, every share carries the same three things: one vote on a company resolution, an equal share of any dividend the board declares, and an equal share of what is left if the company closes (Companies Act s.25(1)). That is what an ordinary share is.
The Act allows a share to be ordinary or preferred, including redeemable preference or convertible, and to carry special or limited voting rights (Companies Act s.18(1)). A "preference" means a priority or a difference, not "better in every way". Very often a preferred share trades its vote for a dividend paid first: it is paid ahead of the others, but has less say.
Each of these is one of the five questions the form asks. You set them class by class.
Classes of shares
A company may have more than one class of shares. A "class" is simply a group of shares that all carry the same rights and the same value; a different set of rights, or simply a different value per share, makes a different class.
The Companies Act defines a class of shares as "shares having identical rights, privileges, limitations and conditions" (Companies Act s.2). So when you create a preferred class, you are creating a group of shares that all carry the same rights, rights that differ from the ordinary shares. A company can have several such classes, for example "Class A preference" and "Class B preference", each with its own terms.
A class can also differ by its value alone. Two classes may carry the same rights and a different value per share, for example ordinary shares of 10 LSL and a "Class B" of 100 LSL with the same answers to the five questions. The Act never requires all classes to share one value, and every issue is reported to the Registrar with the number and the nominal amount of the shares issued (Companies Act s.20(3)). On the form this needs nothing special: each class row carries its own value per share, and a class with no special rights simply answers "No", or "same as ordinary", to the five questions.
In the form, you give each class a name. That name is important: it is the link the system uses everywhere else. The same class name is recorded in the company's capital record and is used again when you allocate shares to each shareholder. So use clear, distinct names. The form requires each class name to be unique, and shareholders are matched to a class by that exact name.
The five questions the form asks
When you choose "Ordinary and preferred", each class you list answers five short questions that set its rights. From the answers the form writes one plain line for the class.
Choosing "Ordinary and preferred shares" opens a table where you list your preferred classes. For each class, you give the class name, the number of shares, and the value per share. The form works out the class total. Then, for the same class, you answer the five questions, one for each right.
Choosing "Ordinary and preferred shares" reveals the preferred-shares table below. If you choose "Only ordinary shares", the table stays hidden and the company has a single class of equal shares.
If yes, you add the dividend rate, a percentage of the value per share.
If yes, you add the buy-back price, and a date when it is on a fixed date.
If yes, you add the date or event that triggers the conversion.
Once registered, the named classes appear in some of your documents but not all, useful to know in advance:
Changing a class's rights later
Once a class has been issued, its rights are protected. They cannot be changed quietly. The affected class has to agree.
A company may not take an action that affects the rights attached to a class of shares unless that action is approved by a special resolution of the affected class (Companies Act s.48). The model articles set out the mechanics: the rights of a class may be varied with the written consent of three-quarters of that class, or by a special resolution passed at a meeting of that class (model articles, art. 3).
A point of honesty about the service: the registration form models a single approval threshold for changes to capital and shares, set in your governance rules. It does not separately capture the class-by-class variation that the law describes. So changing the rights of a particular preferred class is an articles and governance matter, handled outside the five questions.
Buy-back: redeemable preference shares
A company may issue preference shares it can buy back ("redeem") later, a useful option when the preference is meant to be temporary. This is the form's fourth question.
If its articles allow it, a company may issue preference shares that are liable to be redeemed, bought back, at the option of the company or of the shareholder (Companies Act s.21). On the form, the fourth question sets when: when the company decides, when the holder asks, or on a fixed date. When it is on a fixed date, you also give that date, and for any buy-back you give the buy-back price.
- if the company's articles authorise it;
- out of the company's profits, or out of the proceeds of a fresh share issue made for the purpose;
- while the company still passes the solvency test after the redemption (Companies Act s.21).
So the form records whether a class is redeemable and on what trigger. The deeper terms of a redemption, and the solvency and funding rules above, are matters of your articles and the board's decision at the time.
Conversion: turning into ordinary shares
A preferred class can be set to turn into ordinary shares later, so a temporary preference ends and the shares become plain ordinary shares. This is the form's fifth question.
The Act allows shares that are convertible (Companies Act s.18(1)). On the form, the fifth question asks whether the class can turn into ordinary shares: no, yes, when the holder asks, or yes, automatically on a set date or event. When a class can convert, you also give the date or event that triggers it.
So the form records whether a class can convert and on what trigger. The conversion price and its detailed terms are set by the board and belong in your articles and the board's decision, as the Act requires.
A preferred share is an ordinary share with a special value or special rights. For each class you give its value and set five rights: its dividend, its repayment, its vote, its buy-back, and its conversion. The form gathers your five answers into one plain line, stores it with the class, and prints it in your articles of incorporation.
