Different classes of shares (optional clause)

Different classes of shares (optional clause)

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This document provides a clause to be added to a shareholders’ agreement, providing for different classes of shares.

Classes of shares

Companies may have 1, or various different, classes of shares. The categorisation of shares into classes is usually set out in the constitution of the company.

The most common share type is an ordinary share, which allows the shareholder one vote per share at company meetings and to partake equally in company dividends. The classification of shares into different classes indicates that the company may distinguish between different rights of shareholders to vote at company meetings or to participate in the dividends of the company or the distribution of assets in the company, or all of the above.  

The most common classification of shares is into Class A and Class B shares. Class B shares tend to have less voting rights than Class A shares. However, the classification of shares and rights attaching to these classifications are specific to each company.

It is uncommon to include the classification of shares in a shareholders’ agreement. However, where there are smaller numbers of shareholders, the shareholders may prefer to include the classification of shares and corresponding rights in the shareholder agreement as well as in the constitution.

The clause below is an example only and needs to be customised depending on the different classification of shares by a specific company. Further, care must be given to ensuring that the clause is consistent with the terms of the constitution of the company regarding classification of shares.

Using this precedent

This is a general clause which can be inserted into a shareholders’ agreement. The provisions can also be used as the basis for identifying additional share classes in the separate precedent “Shareholders’ agreement (short form)”.

When inserting this optional clause into an agreement, care must be taken to ensure that the agreement remains consistent. Cross-references, definitions and schedules should all be checked.

his document has been authored for Lexis Nexis by Elise Margow, Principal, Legally Speaking.

This document is prepared with the assistance of Specialist Editor Stephen Newman, Executive Counsel, Ponte Earle.