When we use the term ‘Alphabet Shares’ what we’re referring to is different types of share classes that are denominated by a letter.
For example, we have “A” Ordinary shares”, “B” Ordinary Shares””- this part’s pretty simple. Frustratingly, though, the 2006 Companies Act gives us no clue as to what a right attached to a share is. So, we have to look at common law and some classic examples of rights attached to shares, which can be voting rights, dividend rights and rights to capital on winding up.
Where should you find the rights attached to your shares?
Here’s where it gets slightly more complicated. Normally, you’ll find the rights attached to a class of shares in your company’s Articles of Association. However, just be aware that sometimes certain rights can also be set out in a separate contract like a shareholder’s agreement. Ultimately, it’s just really important to know where these rights are set out to avoid any mistakes when it comes to voting, dividends or any other share-related issues.
Don’t be concerned if you find specific rights vary among different companies and different classes of shares. Essentially, the rights should tell you about any particular entitlements and how much power each share gives to the person who owns it.
More often than not, companies will generally use Alphabet shares to pay dividends at different rates. Just remember that they might also use these shares to restrict voting rights and rights to capital per share to one or more Alphabet share class.
In case all this information isn’t confusing enough, if your company’s Articles of Association does NOT tell you what rights are attached to different classes of shares, they WILL rank equally in voting, dividend and rights to capital on winding up. This would mean, for example, that someone whose shares equate to very little could be entitled to the same dividend rights as another person whose shares equate to a much higher value.
Also, just because you’ve set up different Alphabet share classes doesn’t mean you can simply assume that your company can pay dividends to one class of shares to the exclusion of another and/or in different amounts. If you want to do this, you have to make sure that a specific article has been put in to the company’s Articles of Association.