What is the difference between A shares and B shares?

In the UK, the Companies Act 2006 allows a company to issue different classes of shares. These are usually called A shares, B shares, C shares, and so on.

There is no legal definition of what an A share or a B share is.

The labels themselves mean nothing in law.

What matters is the rights attached to each share class, and those rights must be clearly written into the company’s Articles of Association.

What types of rights can be different?

Each share class can have different rights in three main areas:

1. Voting rights

2. Dividend rights

3. Capital rights (what shareholders receive if the company is sold or closed)

The company decides how these rights work, not Companies House.

A shares – how they are commonly used

In practice, A shares are often the “main” or “ordinary” shares.

They usually:

• Carry full voting rights

• Receive dividends automatically when dividends are declared

• Have full rights to capital on a sale or winding up

Example

A company has:

• 100 A shares

• Each A share has one vote

If you own 60 A shares, you control 60% of the votes and therefore control the company.

B shares – how they are commonly used

B shares are often used to introduce flexibility, especially around control and dividends.

They might:

• Have no voting rights, or limited voting rights

• Receive different or discretionary dividends

• Have restricted or different capital rights

There is no requirement for B shares to be “worse” than A shares, but in reality they are often designed to separate ownership from control.

Practical example: keeping control but sharing profits

Let’s say you run a company on your own.

You want to bring in a new director and reward them with a share of profits, but you do not want to give up control.

You could:

• Keep A shares for yourself with full voting rights

• Issue B shares to the new director with:

  • No voting rights

  • A right to dividends only if the directors decide to pay them

This means:

• You stay in control of decisions

• The director can still benefit financially if the company performs well

Practical example: flexible dividends for tax planning

B shares are often used for dividend flexibility.

For example:

• A shares receive a fixed dividend

• B shares receive dividends at the directors’ discretion

This allows dividends to be paid:

• In different amounts

• To different shareholders

• At different times

This is legal under company law, provided the Articles allow it.

However, HMRC will closely review these arrangements to make sure they are not being used to avoid tax improperly.

Capital rights – often overlooked but very important

Capital rights decide what happens to money if the company is:

• Sold, or

• Wound up

For example:

• A shares might be entitled to all sale proceeds

• B shares might only receive:

  • A small fixed amount, or

  • Nothing at all on exit

This is very important when issuing shares to employees or directors, because HMRC will look at whether the shares have real value at the point of issue.

What does the Companies Act require?

From a legal point of view:

• The rights of each share class must be:

  • Set out in the Articles of Association, or

  • Included in a written resolution attached to the Articles

• Any issue of new shares must be:

  • Approved by the directors

  • Properly minuted

  • Reported to Companies House

    
    

• Any changes to share rights usually require:

  • Shareholder consent, and

  • Updated filings at Companies House

Companies House records the structure — it does not judge whether it is a good or bad arrangement.

A common misunderstanding

Many people think:“B shares are just worth less.”

That is not automatically true.

The value of a share depends on:

• Voting power

• Dividend rights

• Capital rights

A B share with no votes but strong dividend rights can still be valuable.

This is why share valuations matter, especially when shares are issued to individuals connected to the business.

A final warning on tax

While A and B share structures are allowed under company law:

• HMRC does not care what you call the shares

• HMRC looks at the economic reality

Issuing shares can trigger:

• Income tax

• Capital gains tax

• Employment-related securities rules

In many cases, a professional valuation and tax advice should be obtained before shares are issued.