Corporate share structure refers to the classification and organization of shares within a company. It dictates the types, classes, and series of shares a corporation is authorized to issue. Every corporation must have at least one class of shares, and the share structure is established in the company’s articles upon incorporation. Shareholders are individuals or entities that own these shares, thereby holding a stake in the corporation.

Types of Shares in a Corporation

Corporations issue different types of shares, each with unique rights, privileges, and restrictions. The most common categories of shares include:

1. Common Shares

Common Shares sometimes referred to as ordinary shares, provide equity ownership in the company. They typically come with voting rights, and allow shareholders to participate in corporate decision-making. Holders may receive dividends and have a claim on the company’s assets after all debts have been settled in the event of liquidation. A significant advantage of common shares is their potential for appreciation in value as the company grows.

2. Non-Voting Shares

Non-voting shares grant shareholders an equity stake in the company without the ability to participate in corporate governance. This share type is often issued to investors who seek financial returns but don’t desire involvement in decision-making. Non-voting shares enable companies to raise capital while retaining control over management and strategic direction.

3. Preference Shares

Preference shares provide shareholders with certain advantages over common shareholders, particularly in terms of dividend distribution and priority over assets. These shares typically offer a fixed dividend, which is paid before any dividends are distributed to common shareholders. Preference shares often lack voting rights, though some may grant limited voting privileges. Additionally, they may include features such as convertibility into common shares or the option to be repurchased by the company at a predetermined price.

Share Structure is Important

The share structure of a corporation is a very important component of its governance and financial strategy. It defines the distribution of ownership, control, and financial benefits among shareholders. Choosing the right share structure ensures a balanced approach to ownership, control, and financial incentives, and supports the long-term success of the corporation.