Class A shares?
Discussion
I've Googled to my hearts content but I can't quite work it out.
What exactly does primary A class shares mean with regards to a normal Ltd company?
I don't want to go into too much detail but I just can't work out what this means.
If an investment company wanted to invest X amount for x% of primary A class share equity, what exactly does that mean?
Is it just a complicated way of saying that they want 50% of the business or does it give them something else?
What exactly does primary A class shares mean with regards to a normal Ltd company?
I don't want to go into too much detail but I just can't work out what this means.
If an investment company wanted to invest X amount for x% of primary A class share equity, what exactly does that mean?
Is it just a complicated way of saying that they want 50% of the business or does it give them something else?
As above, depends what A / B / X class shares as defined as in the shareholders agreements / articles.
Most "normal" companies only have one class of shares, all of which have voting rights. But you can create lots of others and define them as you wish.
Really you have to read up what the classes mean in terms of the specific company.
Quite often if you have multiple share classes and investors you have stuff like preferential dilution on A class and all sundry of other things to make them a lot more valuable than other classes. It's all a bit silly and smoke and mirrors to make big investors a return at the expense of early shareholders / people who aren't fully numerate/understand what's going on.... the wheels of finance need greasing.... Of course, their existence does facilitate deals/investment, so is probably a good thing, but they can be used to tip the table towards certain investors heavily, tails you win heads I lose kind-a-thing.
Most "normal" companies only have one class of shares, all of which have voting rights. But you can create lots of others and define them as you wish.
Really you have to read up what the classes mean in terms of the specific company.
Quite often if you have multiple share classes and investors you have stuff like preferential dilution on A class and all sundry of other things to make them a lot more valuable than other classes. It's all a bit silly and smoke and mirrors to make big investors a return at the expense of early shareholders / people who aren't fully numerate/understand what's going on.... the wheels of finance need greasing.... Of course, their existence does facilitate deals/investment, so is probably a good thing, but they can be used to tip the table towards certain investors heavily, tails you win heads I lose kind-a-thing.
Edited by stuthe
on Tuesday 24th April 21:12
on Tuesday 24th April 21:12A company can have different classes of shares with each class having different rights such as:
[*] voting rights (2 votes per share v 1 vote per share)
[*] right to dividends (Class A might get £2 per share whereas Class C may only receive 50p)
[*] right to capital
[*] rights or restrictions on transferring/alloting new shares
[*] special rights such as the right to appoint a director
This allows different groups to have different rights - e.g. Mark Zuckerberg only owns 16% of the shares in Facebook but his class of shares give him control over 60% of the voting rights.
The specific rights of each class will be unique to a company so you'll need to consult the company's articles of association, shareholder resolutions or shareholder agreements to see the rights of each class. If it's a UK company, you can look up the articles and any new share allotments at Companies House - https://beta.companieshouse.gov.uk/
[*] voting rights (2 votes per share v 1 vote per share)
[*] right to dividends (Class A might get £2 per share whereas Class C may only receive 50p)
[*] right to capital
[*] rights or restrictions on transferring/alloting new shares
[*] special rights such as the right to appoint a director
This allows different groups to have different rights - e.g. Mark Zuckerberg only owns 16% of the shares in Facebook but his class of shares give him control over 60% of the voting rights.
The specific rights of each class will be unique to a company so you'll need to consult the company's articles of association, shareholder resolutions or shareholder agreements to see the rights of each class. If it's a UK company, you can look up the articles and any new share allotments at Companies House - https://beta.companieshouse.gov.uk/
Thank you all for the great replies.
Basically from what I understand, the business is only a small normal Ltd company with 2 directors.
Investment group want to invest high sum of money in return for 50% of the business defined as primary A share class equity.
Just trying to work out (mainly for my own satisfaction) what that means in real terms as to whether they will be in control and/or get a higher share than the current directors owning 50% each.
Basically from what I understand, the business is only a small normal Ltd company with 2 directors.
Investment group want to invest high sum of money in return for 50% of the business defined as primary A share class equity.
Just trying to work out (mainly for my own satisfaction) what that means in real terms as to whether they will be in control and/or get a higher share than the current directors owning 50% each.
rich12 said:
Just trying to work out (mainly for my own satisfaction) what that means in real terms as to whether they will be in control and/or get a higher share than the current directors owning 50% each.
As Ninja-Lewis says, you'll only know for sure what that actually means if you have access to the articles, shareholder agreements etc.. It could be unique for every company (although there are common scenarios for straightforward situations).Any investment company investing a large amount of money will basically have the control they want, no investment comes without large quantities of paperwork specifying everything from the control / voting / dividends / salaries / sale of shares / etc. to the brand of coffee to be served at board meetings!
when I received VC investment in my first company, we laid out the paperwork to be signed on my dining room table, 10ft table and the paper work went around both sides!
you will only know the details by asking for them, but some golden rules of investment:
- you will no longer have full control
- don't think that because you have xx% of the shares you have comensurate control - shareholder agreements etc. set the control regardless of the % you own...
- consider an invested company as being similar to working for someone else, you have about as much power and authority, the upside is that you do well if there is an exit
- don't forget you will no longer have full control
when I received VC investment in my first company, we laid out the paperwork to be signed on my dining room table, 10ft table and the paper work went around both sides!
you will only know the details by asking for them, but some golden rules of investment:
- you will no longer have full control
- don't think that because you have xx% of the shares you have comensurate control - shareholder agreements etc. set the control regardless of the % you own...
- consider an invested company as being similar to working for someone else, you have about as much power and authority, the upside is that you do well if there is an exit
- don't forget you will no longer have full control
rich12 said:
Thank you all for the great replies.
Basically from what I understand, the business is only a small normal Ltd company with 2 directors.
Investment group want to invest high sum of money in return for 50% of the business defined as primary A share class equity.
Just trying to work out (mainly for my own satisfaction) what that means in real terms as to whether they will be in control and/or get a higher share than the current directors owning 50% each.
It means nothing in isolation. A company can call shares "I hate the scouser and will hate them even more if they win the CL" if it wants to. But you won't know what they represent until you look at the articles and compare their rights against the rights of other shares issued by the company. Basically from what I understand, the business is only a small normal Ltd company with 2 directors.
Investment group want to invest high sum of money in return for 50% of the business defined as primary A share class equity.
Just trying to work out (mainly for my own satisfaction) what that means in real terms as to whether they will be in control and/or get a higher share than the current directors owning 50% each.
DSLiverpool said:
Slightly off topic but only take investment for equity if you really have no other choice. Chap who bought a company took funding in march and was out of his own business by September with nothing ar all (had a nice car for a few months extra)
Then he was very badly advised - if advised at all!My first business was a VC backed startup (only such equestrian business in the world at the time - VCs not really understanding horses
)I have also sat on the board of a business in that sector (providing money) and advised a number of businesses on investment...
Ultimately - there are some types of business where investment is a necessary evil (high start up costs / longer term income / etc.) where it pump primes a stronger business - but there is rarely a need to agree something which gets you out of the business - certainly not losing the remaining equity you hold, even if it becomes apparent that you are no longer the right person to continue to lead the business...
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