Most UK limited companies are incorporated with a single class of ordinary shares — 100 shares of £1 nominal, split between the founders. It works. It is also, for many businesses, a structure that constrains tax planning, family flexibility and investor accommodation almost immediately. Designing the right share structure at formation, or restructuring early, is one of the highest-return decisions a founder can make.
The three building blocks
Modern UK share structures use three core tools, often in combination:
- Alphabet shares — multiple classes of ordinary shares (A, B, C, D) with identical rights except that dividends can be declared independently on each.
- Growth shares — shares that participate only in growth above a defined hurdle, used for employees and family members to gain upside without large initial value.
- Preference shares — shares with prior rights to dividends or capital, used to balance contributions between founders and investors.
Alphabet shares — flexible dividends
The defining feature of alphabet shares is the ability to declare different dividends on different classes. This unlocks:
- Spouse income splitting. Where one spouse is in a higher tax band, declaring dividends preferentially on the lower-earning spouse's class can substantially reduce family tax. Subject, of course, to genuine ownership and no settlements issues.
- Co-founder differentiation. Founders with different cash needs can draw different amounts in the same year, without altering long-term ownership economics.
- Family planning. Adult children, where genuinely involved or where the gift of shares is a real intergenerational planning step, can receive dividends differently from parents.
The traps: settlements legislation (a spouse class with no real economic value is challenged), inadequate documentation, and arrangements that are clearly artificial. We always pair alphabet structures with proper shareholder agreements and clear board minutes.
Growth shares — the EMI alternative
Growth shares are designed to give recipients economic participation only in the increase in value of the company above a defined hurdle. At grant, the shares have minimal value, so the recipient pays little or no Income Tax on receipt. Future growth is captured by the growth share class.
Where this fits:
- Companies that have outgrown EMI option eligibility (over 250 employees, certain trades, certain group structures).
- Senior hires post-Series A where straight options would crystallise large Income Tax liabilities.
- Family members joining the business who should participate in future growth without inheriting historical value.
Growth shares need careful valuation at grant — usually an HMRC-friendly third-party valuation — and tight legal drafting to ensure they behave as intended.
Preference shares — capital and risk balancing
Preference shares rank ahead of ordinary shares for dividends and/or return of capital. Where one founder contributes substantially more cash than another, fixed-rate preference shares can provide a yield on the additional contribution while ordinary shares preserve growth participation. They are also widely used in third-party investor rounds, though SEIS/EIS investors take ordinary shares with limited preference features only.
How the classes work together
A realistic SME structure might look like this:
- A Ordinary: 50% to founder 1, full voting and dividend rights.
- B Ordinary: 30% to founder 2, full voting and dividend rights.
- C Ordinary: 10% to spouse(s), full dividend rights, limited voting.
- D Growth: 5% reserved for key employees, hurdle set at current valuation.
- E Preference: issued to a founder who contributed seed capital, 6% fixed dividend.
It looks complex on a slide; in practice the company runs perfectly normally, with the share register telling the story of who gave what and who gets what.
Doing this at formation vs later
Setting up multiple share classes at formation costs marginally more than the default model articles. Restructuring later involves shareholder resolutions, possible HMRC clearances, valuations, and legal drafting. The ratio is usually 1:10 in cost. Where there is any chance of multiple classes being useful — spouse involvement, employee equity, mixed contributions — designing in flexibility from day one is the cheap option.
How PushDigits helps
Our UK formations service includes a share structure design step for every client. Where we know investment or EMI options are likely within 18 months, we recommend bespoke articles and a multi-class capital structure. Our tax planning service then keeps the structure aligned with annual changes in personal circumstances.
To review whether your existing single-class structure is constraining you, book a structuring call.