Types Of Company Shares In The UK: Startup And SME Overview

If you’re running a startup or small business, the “shares” conversation usually starts when you’re bringing in a co-founder, offering equity to early hires, or raising money.

And that’s when you realise there are lots of different share types in the UK - and choosing the wrong structure can create messy (and expensive) problems later.

This guide breaks down the most common types of company shares in the UK in plain English, how they’re typically used in UK private limited companies, and what you should think about before you issue (or promise) equity.

What Are Company Shares (And Why Do They Matter For Small Businesses)?

In a UK company limited by shares, a “share” is a unit of ownership in the company. If your company has 100 shares in issue and you hold 60, you generally own 60% of the company.

But in practice, shares can do much more than show ownership. Different share classes can give different people:

• Different voting power (who controls big decisions)
• Different dividend rights (who gets paid when profits are distributed)
• Different rights on a sale or liquidation (who gets paid first if the company is sold or wound up)
• Different transfer rules (how easily someone can sell or pass on their shares)

So, when people search “types of company shares”, what they usually really want to know is: how can we split control, risk, and upside in a way that fits our business?

A Quick Note On The Legal Framework

Most UK share structures sit within the rules set out in the Companies Act 2006, plus your company’s internal documents - especially its Articles of Association (sometimes referred to as the company constitution). What you can and can’t do with shares often depends on what’s written in your Articles and any shareholder arrangements - so it’s worth getting this right early rather than trying to “patch it” after a dispute.

For most SMEs, the practical starting point is making sure your Company Constitution (Articles) actually supports the share rights you’re trying to create.

The Most Common Types Of Company Shares In The UK (Explained Simply)

There isn’t one universal list of share classes - companies can create different classes of shares with different rights (as long as it’s set up properly). That said, there are a few you’ll see again and again in UK startups and SMEs.

1. Ordinary Shares

Ordinary shares are the “standard” share most small companies start with. They usually come with:

• Voting rights (often 1 vote per share)
• Dividend rights (a share of profits if dividends are declared)
• Capital rights (a share of proceeds if the company is sold or wound up)

When ordinary shares make sense: founder-owned companies, early-stage businesses before fundraising, or straightforward ownership splits where everyone’s incentives align.

Common pitfall: issuing ordinary shares to someone without thinking about control. If you issue 50% of your ordinary shares to a co-founder, you may be creating a deadlock risk if decisions require shareholder approval.

2. Preference Shares

Preference shares generally give the holder some kind of “preference” over ordinary shareholders - usually about dividends and/or what happens on an exit.

There are many variations, but preference shares often include:

• Priority dividends (paid before ordinary dividends)
• Priority return of capital (paid first on a sale or liquidation)
• Sometimes limited voting rights (depending on how they’re drafted)

When preference shares make sense: fundraising scenarios where an investor wants downside protection (for example, getting their money back first if the company is sold).

Watch out: the commercial terms can get complex quickly (e.g. liquidation preferences, participation rights, conversion rights). The share “label” is only half the story - the detailed rights matter just as much.

3. Redeemable Shares

Redeemable shares are shares the company can (or must) redeem (buy back) later, under specific conditions.

When redeemable shares can help:

• Succession planning for family businesses
• Structuring an investor’s exit route (in limited situations)
• Cleaning up ownership where there’s a planned buy-back mechanism

Important: a redemption or buy-back has to follow specific Companies Act procedures and (among other things) needs to be funded properly (for example, using distributable profits or a permitted fresh issue of shares). You can’t just “buy back shares whenever” without the right process and documents.

4. Non-Voting Shares

Non-voting shares typically allow someone to share in the economic upside (dividends and/or sale proceeds) without giving them votes on most shareholder decisions.

When non-voting shares can make sense:

• You want to reward or include someone financially, but keep decision-making tight (common in owner-managed SMEs)
• You have silent investors or family shareholders
• You’re trying to avoid operational disruption caused by too many voting shareholders

Reality check: “non-voting” doesn’t mean “no rights”. Depending on your Articles and the Companies Act, holders may still have important rights - and in some cases they may vote on particular matters that affect their class rights. They may also have legal protections (for example, around unfair prejudice) even if they don’t vote routinely.

5. Alphabet Shares (A Shares, B Shares, C Shares)

Alphabet shares (like A ordinary, B ordinary, etc.) are a common way for small businesses to create flexible dividend arrangements.

For example, you might have:

• A shares held by Founder 1
• B shares held by Founder 2
• C shares held by a family trust

Then the company can declare dividends differently across each class (if it’s set up correctly) - which can be useful for tax planning and varying contributions over time.

When alphabet shares are useful: profitable owner-managed SMEs where dividend flexibility matters.

Common pitfall: thinking alphabet shares automatically solve disagreements. They don’t - they’re a tool, and they still need clear rules in your company documents.

6. Deferred Shares

Deferred shares are shares that usually have reduced or delayed rights (often no dividends unless certain conditions are met, and limited capital rights).

When they might appear: sometimes used in restructures or where historic shareholdings are being “parked” without full rights.

Be careful: deferred shares can look tidy on paper but raise fairness and expectation issues if not explained properly to shareholders. They also need careful drafting in your Articles.

7. Growth Shares (Common In Startups)

Growth shares are designed so that someone only benefits if the company grows above a certain value. In other words, they may not participate in today’s value, but they share in future upside.

When growth shares can make sense:

• Bringing in a key hire but you don’t want to dilute founders heavily upfront
• Aligning incentives so equity rewards future growth, not past effort
• Managing the tension between “early risk” and “later contribution”

Important: growth shares have tax and valuation implications, and the details matter. If you’re considering them, it’s worth getting proper legal and tax advice before issuing them (and before anyone starts work relying on “promised equity”).

How Do You Choose The Right Share Structure For Your Business?

The best share structure depends on what you’re trying to achieve. The question usually isn’t “what’s the best type of shares?” - it’s “what problem are we trying to solve?”

Here are the big decision points we see for startups and SMEs.

Are You Trying To Split Control Or Just Value?

• If you want someone to share in profits but not control decisions, you might consider non-voting shares.
• If you want someone to help steer the company, ordinary voting shares (or a voting class) may make more sense.

Control isn’t just about day-to-day management - shareholder votes can matter for issuing new shares, changing the Articles, approving major transactions, or winding up the company.

Do You Need Flexibility On Dividends?

If your business is profitable (or expects to be), dividend flexibility is often a big driver of share classes, especially for owner-managed SMEs.

Alphabet shares are commonly used here, but the exact rights need to be set up carefully so dividends are declared lawfully and in line with your internal rules.

Are You Planning To Raise Investment?

Investors often look for structures that protect their investment - and that’s where preference shares (and detailed investor rights) come in.

In many cases, investment will also involve documents that set out how new shares are issued, at what price, and on what terms. That’s where a Share Subscription Agreement can become relevant.

Are You Issuing Equity To Founders Or Team Members Over Time?

If you’re offering equity to a co-founder or early employee, you’ll want to think about what happens if they leave early. This is one of the most common “we wish we’d sorted this sooner” issues.

A typical approach is vesting (earning shares over time), which can be documented in a Share Vesting Agreement.

Without vesting, someone can walk away with a meaningful percentage of the business after a short period - which can make fundraising, hiring, or even selling the company much harder.

What Documents Do You Need When Issuing Different Types Of Shares?

It’s tempting to treat shares as an informal agreement (“we’ll give you 10% and sort the paperwork later”). But for companies, the paperwork is the deal - and getting it wrong can create legal uncertainty, tax issues, and shareholder disputes.

Depending on your situation and the type of shares you’re issuing, you may need some or all of the following.

Your Constitution (Articles Of Association)

Your Articles of Association set the core rules for your company, including share classes and rights. If you want multiple share classes, your Articles need to allow it and describe the rights clearly.

If you haven’t looked at yours since incorporation, it’s worth checking whether it matches what you’re trying to do now - your Company Constitution (Articles) is often where problems begin (and where they can be fixed properly).

A Shareholders Agreement

Your Articles are public-facing and fairly structural. A shareholders agreement is where you usually set the “relationship rules” between shareholders in a more practical way.

For example, a Shareholders Agreement can cover:

• How decisions are made (and what needs unanimous approval)
• What happens if a shareholder wants to leave
• Rules on transferring shares (including pre-emption rights)
• How deadlocks are resolved
• Protection for minority shareholders (and protections for the company)

If you have more than one shareholder, this is often one of the most important documents to get right from day one.

Board And Shareholder Approvals

Issuing shares usually requires formal approvals. This may include:

• Board decisions approving the allotment
• Shareholder resolutions (especially if you’re disapplying pre-emption rights or changing share classes)
• Updating statutory registers and filings

The exact approvals depend on your Articles, any shareholders agreement, and the Companies Act rules.

Share Transfers (If You’re Not Issuing New Shares)

Sometimes you’re not creating new shares - you’re transferring existing shares from one person to another.

That process has its own steps and documents. If you’re changing ownership, it’s worth making sure the Share Transfer is handled properly so the company’s registers and filings stay accurate.

Vesting, Leaver Provisions, And Incentive Terms

If shares are tied to someone’s ongoing involvement (a founder, director, or key hire), you’ll usually want:

• Vesting (so equity is earned over time)
• Leaver rules (good leaver / bad leaver outcomes)
• Restrictions on transfer while they’re involved

This can be documented in a Share Vesting Agreement and aligned with your shareholders agreement.

Common Mistakes With Share Types (And How To Avoid Them)

Most share problems don’t come from bad intentions - they come from moving fast, keeping things informal, and assuming you can “fix it later”. Here are some of the most common issues we see.

1. Issuing Shares Before You’ve Agreed What Happens If Someone Leaves

This is especially common with co-founders. You’re excited, you want to make it official, and you split shares immediately.

Then six months later, one founder leaves - and still owns a large chunk of the company. That can be a dealbreaker for investors, and it can be deeply demotivating for the team doing the work.

Fix: consider vesting and clear leaver rules early.

2. Creating Share Classes Without Updating The Constitution

You can’t reliably create “special” shares just by agreeing it in an email or a handshake deal. Share rights usually need to be clearly set out in your Articles and supported by proper approvals.

Fix: check your Articles first, then document the share class rights properly.

3. Overcomplicating The Structure Too Early

Some companies create multiple share classes “just in case” before they’ve even validated the business model.

Complexity can:

• Increase legal and admin costs
• Confuse future investors
• Create unintended tax outcomes

Fix: keep it as simple as possible, but no simpler than your risk profile requires.

4. Confusing Shares With Employment/Performance Arrangements

Equity can be a great incentive - but it doesn’t replace an employment or contractor arrangement. If someone is working in the business, you still need to document the working relationship properly.

Equity also needs to be aligned with responsibilities, confidentiality, and IP ownership. If you’re hiring or formalising roles, it’s worth having the right legal foundation in place (and if you’re still setting up the business, make sure your structure is right when you Register A Company).

5. Not Thinking Through Minority Shareholder Issues

Minority shareholders can have legitimate concerns - and majority shareholders can face real operational friction if expectations aren’t managed.

A well-drafted shareholders agreement can reduce the risk of disputes by setting expectations early, including how information is shared, how decisions are made, and what happens on exit.

Key Takeaways

• There are many types of company shares in the UK, and the “right” type depends on what you’re trying to achieve (control, dividends, investment protection, or incentives).
• Ordinary shares are the most common starting point, but they may not suit every situation once you’re growing or raising funds.
• Preference shares and redeemable shares are often used for investment and exit planning, but they can be complex and need careful drafting.
• Non-voting shares and alphabet shares can be useful for managing control and dividend flexibility in SMEs.
• If you’re issuing equity to founders or team members, consider vesting and clear “leaver” outcomes to protect the business.
• Getting the documents right matters - your Articles, shareholder arrangements, and issuance/transfer paperwork should all match the structure you’re using.

Note: This article is general information only and isn’t tax advice. Share structures can have tax consequences, so it’s worth getting tailored advice for your situation.

If you’d like help choosing the right share structure or putting the right documents in place, you can reach us at 08081347754 or team@sprintlaw.co.uk for a free, no-obligations chat.