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Kinds of shares

 In general, there are two kinds of shares: common and preferred. Preferred shares are like bonds: they usually have a set value, and pay a set dividend per year. Common shares are normally the "residual equity" shares: you get what's left after paying the company's debts and preferred shareholders.

You can attach many different rights and restrictions to shares, including:

  • voting rights
  • dividend rights: these can be a fixed percentage, or else at the discretion of the directors
  • rights to redeem the shares for a fixed amount
  • company rights to buy back the shares for a fixed amount
  • the right to convert the shares into shares of another class at a set formula
  • restrictions on ownership of the shares
Shares can have a "par value" or not. Ones with "no par value" have no assigned face value. While the historic reasons for the distinction are no longer that relevant, par value shares can be useful for corporate and tax planning in specific situations. Your lawyer can advise you whether these would be beneficial to set up in your case.

You should plan the share structure of the company to provide for future flexibility as well as your present needs. Consult your tax advisor to choose the best kinds of shares, and ask your lawyer to draft the special rights and restrictions necessary.

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This page last updated: August 26, 1999
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