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Category B Shares Question

Category B Shares Question

Postby giompizz » Wed Nov 15, 2017 4:32 pm

Theoretically, could a limited company create shares of category B status, which only have the economic benefit based on a division or departments performance/profit? If so what problems could that pose with existing ordinary shareholders? Thanks for your replies!
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Re: Category B Shares Question

Postby atticus » Wed Nov 15, 2017 4:52 pm

Q1. Yes. Such arrangements are becoming increasingly common. I am often asked to draft schemes for "growth" shares, which will only participate in a distribution on sale or winding up of the company to the extent that the value of t he company exceeds a set price. The idea is to incentivise the shareholder (usually a key employee).

Q2. The ordinary shares would come with greater rights.
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Re: Category B Shares Question

Postby giompizz » Thu Nov 16, 2017 9:13 am

So it is possible to relate a dividend to the profit of a single department? Or are the B shares just lesser growth shares in the whole corporation?
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Re: Category B Shares Question

Postby atticus » Thu Nov 16, 2017 9:29 am

Q1. Yes, with suitable drafting.

The main point is that dividends are declared by the directors and approved by shareholders. Unless the Articles are poorly drafted, different dividends can be declared to different classes of share. So the directors can determine the dividend on B shares (and C, D, E etc) by reference to the particular division or department those shareholders work in (I assume this is for employee shareholders). As I have said, this is a common arrangement in employee share schemes.

Q2. Not necessarily.
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