Structuring shareholding affects shareholders’ control, rights and exit.

The type of shares issued determines:
· Who makes decisions
· Who gets paid (and when)
· Who gets what rights

Below is a concise overview of two type of shares and how they serve different purposes:

Ordinary Shares

1. The most commonly issued type of shares.
2. By default, confer full voting rights, giving shareholders a say in company decisions (subject to percentage held).
3. Can be issued in different classes to provide different rights for each class e.g. dividend entitlement, voting rights, transfer restrictions, or exit value.
   •   Common in dual-class structures (e.g. weighted voting rights for founders)
4. Dividends are not fixed and are only paid if declared by the board.
   Note: Regardless of class or type of shares, a company may only make a distribution to the shareholders out of profits of the company available if the company is solvent.
5. No right to accumulate dividends from previous years where there is no available profit.
6. Upon winding up, ordinary shareholders receive capital repayment only after:
   •   wages, statutory contributions, taxes and creditors are paid; and
   •   preference shareholders have received their repayment of capital.
   If there are surplus assets or profits after these payments, ordinary shareholders are entitled to participate in the surplus.

Preference Shares

1. Commonly used for investment, with limited or no voting rights.
2. Rank in priority to ordinary shares for:
   •   dividend payments
   •   capital repayment on winding up.
3. No right to participate in surplus profits unless expressly provided in the constitution.
4. The constitution must set out the rights of the preference shareholders with respect to:
   •   repayment of capital
   •   participation in surplus assets and profits
   •   cumulative or non-cumulative dividends
   •   voting
   •  priority of payment of capital and dividend in relation to other shares or other classes of preference shares.
5. No additional rights beyond what is expressly set out in the constitution.
6. Dividends may be:
   •   fixed rate
   •   cumulative e.g. if there is no available profit for dividend payment in a given year, the preferential shareholder will be owed the dividend for that year and be paid in the following year when the company has sufficient profits.
7. May be redeemable.
8. May be converted to ordinary shares at a pre-determined rate and time.

Why This Matters

Whether you’re a founder, investor or legal counsel, the shareholding structure affects control, exit strategies and the enforceability of shareholders’ rights.

I’ve seen issues arise from inconsistencies between the shareholders’ agreement and the company constitution or from provisions that conflict with the laws.

These issues often surface when a shareholder wants to exit, the company is raising funds or during corporate exercises.

If you’re reviewing your company structure or preparing for a deal, make sure you get the shareholding structure right.

This post was first posted on LinkedIn on 2 July 2025.