I am about to buy shares in a new company. I was introduced to the company by my best friend so that I trust him that it will be a good investment. However when I read a document about the shares that are available for purchase in the company. I read that there are different types of shares such as preference shares and redeemable shares which give to their owners different rights. Therefore some shares are better than others.
I want to make sure I buy the right types of shares as I will be investing a significant amount of my savings in the company. I want to get the shares that put me in the best position to influence the company as a shareholder. I do not want to be a shareholder who has no power.
Can you please explain shares in terms of how they work and what preference shares and redeemable shares are?
The Answer from Solicitors Online
A share is an interest of a shareholder in a company. You can become a shareholder in a company buy buying shares in that company. When you buy shares in a company, the price you pay for those shares determines the extent to which you are liable for the company’s debts. For example if you bought a single share in a private limited company for £5.00. The extent to which you will liable for the company’s debts will be £5.00. This is also known as the nominal value of a share.
Are all shares created equal? NO!
When you set up a company in the UK, it must have an articles of association. A company can chose to create and incorporate its own articles of association.
Most companies will have one type of share, known as an ordinary share. However a company can divide its shares into as many different classes of shares as it likes in accordance with its articles of association.
One class of shares can give shareholders the right to get a share of any declared dividends, the right to get some of the left over wealth of the company, in the instance that the company winds up. Additionally they can also give shareholder voting rights. These rights may not be available in other classes of shares. Therefore making these shares more desirable and also more expensive to acquire.
When new shares are first given to a shareholder, the rights that those shares hold, should be clearly stated in the terms of their allotment. These terms are normally found in a companies articles of association or company resolution which authorizes the allotment of shares.
Preference shares are shares that allow shareholders to get dividends and a return on their investment in a company, before shareholders who just own ordinary shares alone.
Preference shareholders can also get their dividends through a less lengthy process than ordinary shareholders have to go through to get dividends.
Redeemable shares are temporary shares, which provide a person with a temporary shareholder status. The shares will be redeemed on a specific date, which is set when the shares are first allocated. This date will be a fixed by the company.
If you need legal advice online regarding the shares of your company, you can speak to our Solicitors online right now.