Why have more than one class of shares?

By using different classes of shares, both flexibility and control can be exercised by a company in various areas, probably the most useful I set out below.
 Special rights can be given to different classes of shares:

• to enable only some of the shareholders to hire or fire directors. Most commonly used to ensure that  each class of share can have its "own person" at the heart of the decision making process.
• to enable payment of dividends at different rates to different classes of shares or to some classes to the exclusion of others. This can, in certain circumstances, give flexibility from a taxation point of view.
• to modify the voting rights of a class of shares.
• to bring into play rules relating to the transfer of shares.  This is commonly used to ensure that, if one sharesholder wishes to dispose of his or her share,s then the other members of that class of share have the right of first refusal.
• to give preference to repayment of capital on a winding up.

However, the most important right, if you are an "investor" shareholder, and not involved on a day to day basis, is the right to require your class of shares' approval before the Company can enter into certain transactions. Examples of where this "investor" control is important are:

• the sale of a part of the Company's business or a material asset.
• entering into or extending commitments with funders.
• transactions outside an agreed scope.

Creating different classes of shares is not as costly as you might think.  Please contact me for further details.