Ordinary Shares

...

4. To share in the net assets of the corporation upon liquidation.

A share certificate is the instrument or document that evidences the ownership of a share. As a general rule, a share certificate is issued only when the subscription is fully paid.

The share capital may be par value share or no-par value share. A par value share is one with specific value fixed in the articles of incorporation and appearing on the share certificate. The purpose of the par value is to fix the minimum issue price of the share.

A no-par share is one without any value appearing on the face of the share certificate.

A share is simply called "no par" because it has no par value appearing on the face of the share certificate. But a no-par share has always an "issued value" or "stated value" based on the consideration for which it is issued.

The minimum consideration or issue price for no-par share as provided for in the Corporation Code is P5. In other words, a no-par share cannot be issued for less than P5.

Share capital is divided into transferable shares of stock. A share of stock represents the interest or right of a shareholder in a corporation and is evidenced by a certificate of stock. Share capital includes all types of ownership shares in a corporation. Shareholders acquire either of two basic types of share capital: ordinary share and preference share.

What types of share can a company have?

Most companies only ever have one type of share (or class of share). The shares are commonly called ordinary shares and will be the ones the company was incorporated with. The typical rights that go with ordinary shares (and the rights conferred by the Model Articles for private limited companies) are:

Each share is entitled to one vote in any circumstances. Each share has equal rights to dividends. Each share is entitled to participate in a distribution arising from a winding up of the company.

However, some companies choose to have two or more different types of share. Indeed, if the shareholders consent then a company can have as many different share classes as it likes, each representing a different type of share. The rights that go with different classes of shares can be whatever the shareholders are willing to accept.

Equally, it should be noted that the rights of different classes of shares do not have to be different. In fact, different share classes can have identical rights to other classes. In some companies, “alphabet shares” (“Ordinary A Shares”, “Ordinary B Shares” etc.) with identical rights are issued to different shareholders.

Creating different share classes in this way might allow dividends to be paid to some shareholders but not to others, but the company should be careful to ensure that any such strategy does not constitute a breach of HMRC rules and guidelines.

Manage your company's share classes the easy way

Inform Direct makes it easy to manage share classes, letting you record new share classes and changes to existing class rights. Allotting and transferring shares form part of the core free company secretarial software.

However, in general, if a company has more than one type of share the main differences between them will be found in one or more of the following areas:

Entitlement to dividends

Shares may have the right to normal dividends, preferential dividends (that is, the right to be paid a dividend before other share classes), a dividend only in certain circumstances or no dividends at all.

Entitlement to capital on winding up

If the company is wound up, any assets left after the company’s debts are paid can be distributed to shareholders. However, different share classes may have different rights to capital distribution – with some shares ranking first and others only paid if sufficient assets remain after others have received their full distribution of capital.

Voting rights

Usually, this is as simple as shares either carrying voting rights or not. However, weighted or tiered voting rights are also possible – so, for example, shares may carry extra voting rights in certain circumstances or on certain important matters affecting the company.

While there are a few conventions which are best followed to avoid any misunderstandings a company can call shares by whatever name it likes. That said, you cannot simply assume that shares called ordinary in one company will have exactly the same rights as the ordinary shares in another company. Indeed the only way to ascertain what rights go with a particular share class is to read the Articles of Association of that company.

The reasons why a company would want to have different share classes will generally fall into one of the below categories:

- To attract investment

- To push dividend income in a certain direction

- To remove (or enhance) voting powers of certain individuals

- To motivate staff (to remain as employees)

Provided it follows due process, and subject to any restrictions in its Articles of Association, a company can create new share classes at any time. When it needs a new share class a company can choose to either create a new share class in addition to an existing class or convert an existing share class into one or more new share classes.

It is the Articles of Association which set out the division of shares into their different classes. The Articles will also detail the precise rights attaching to each class. Most classes of share will fall into one of the below categories of types of share:

Ordinary shares

These carry no special rights or restrictions. They rank after preference shares as regards dividends and return of capital but carry voting rights (usually one vote per share) not normally given to holders of preference shares (unless their preferential dividend is in arrears).

Some companies create more than one class of ordinary shares – e.g. “A Ordinary Shares”, “B Ordinary shares” etc. This gives flexibility for different dividends to be paid to different shareholders or, for example, for pre-emption rights to apply to some shares but not others.

In some cases, different