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As a New Zealand company with various shareholders, you might
different kinds of shares with different rights attached to
them. These are known as ‘share classes’ and refer to the
different types of interests shareholders have in a company. This
article will discuss the various shares a company can issue in New
Different Share Classes
A company can create different classes of shares. Companies can
issue shares which are:
- confer preferential rights to distributions of capital or
- confer special, limited or conditional voting rights; or
- do not have voting rights attached to them.
company’s constitution will outline the different classes
of shares that the company can issue.
Usually, the share classes impact the main rights of
shareholders, including their:
- right to vote;
- participation in dividends; and
- entitlement to remaining capital upon winding up the
Entitlement to Vote
Ordinary shares in a company usually carry one vote per share.
In shareholder meetings, certain company decisions require a
certain minimum of votes to pass.
This may be 50% for ordinary resolutions or 75% for special
However, if a shareholder receives non-voting shares, they will
not be able to vote in shareholder meetings. While they still may
have other rights, such as the right dividends, they will not be
able to impact company decision-making. This option may be
preferable for silent investors who do not wish to involve
themselves with the company’s affairs.
Entitlement to Dividends
Dividends are the distribution of profits by a company to its
shareholders. The usual rule is that if a company decides to pay
its shareholders dividends, every shareholder has an equal right to
receive dividends. However, this may not be the case if:
- a different class of shares has been created, which prioritises
dividends for certain shareholders; or
- a class of shares is created with no dividend rights.
Entitlement to Capital
When a company is
wound up, a liquidator usually sells all assets and uses the
sale proceeds to pay off the company’s debts in order of
priority. Once all debts have been repaid, any remaining assets
will be distributed to shareholders. A different class of share may
have different rights attached to the distribution of capital when
winding up the company. Usually, this is a right of priority.
Naming Your Share Classes
While a company can create many different classes of shares, the
two most common types of shares are ordinary shares and preference
As the name suggests, ordinary shares are the most common type
of shares a company will issue. Ordinary shares come with the
- right to vote;
- right to receive dividends; and
- entitlement to receive capital upon winding up the
If a company can no longer pay its debts as they fall due and is
wound up, ordinary shareholders will rank last. After the
liquidation process, secured creditors receive payments first,
followed by unsecured creditors, preferential shareholders and then
Preference shares typically attach the same rights to vote and
dividend rights as ordinary shareholders though they will also have
a liquidation preference. If a company is wound up, preference
shareholders will have priority over ordinary shareholders to get
their money back. Typically, preference shares are sought after by
investors as they wish to see that the company will reimburse them
before other shareholders if the company needs to be wound up.
Shareholders in a company may have different rights due to
holding different classes of shares. Typically, each share carries
a right to vote, the right to participate in dividends, and
entitlement to any remaining capital upon winding up of the
company. While a company will typically start with only ordinary
shares on issue, external investors may seek to be issued
preference shares that carry rights in preference to the ordinary
shares already on issue.
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