Both ordinary shares and preference shares give shareholders ownership in a company, but they can be different from each other in some important ways. We take a look at the main points that differentiate them.<\/p>\n
Shares are unit of ownership in a company. When you initially incorporate a new company it\u2019s most common that there is only one class of shares \u2013 known as \u2018ordinary shares\u2019. These shares all have exactly the same key rights in the company, the most important being:<\/p>\n
With a single class of ordinary shares these rights are proportionate. For example, if you had ten shares out of 100 you would be entitled to 10% voting rights in, and ownership of the company.<\/p>\n
However, under English law share classes are theoretically unlimited, and as companies grow and become more sophisticated they often create more than one class of shares. These additional classes of shares are often referred to as preference shares.<\/p>\n
The first thing to bear in mind is that UK company law is extremely flexible. Within the existing legal framework, companies are free to create many different types of shares with often varied rights.<\/p>\n
Within early-stage \/ venture investing, there are common variations that tend to be seen. These variations focus on one of two areas \u2013 economics and voting.<\/p>\n
There are three main ways in which a company will return value to shareholders:<\/p>\n
Although directors are appointed by shareholders to run the company on their behalf, it’s ultimately the shareholders, via their votes, who have control of the company.<\/p>\n