Starting limited company - different classes of shares

mike12341234

Hi,

We are starting limited (by shares) company with partner

We wanted to model it in way that I have 70% of dividend and capital distribution rights and my partner 30%, but we both have 50%/50% of voting rights

We structured our stocks like this using wizard on Companies House website

Class A shares (for dividends and capital)

votes: "No votes per share"

dividend: "Each share is equally entitled to a distribution of dividends"

capital: dividend: "Each share is equally entitled to a distribution of capital"

(70% of those shares assigned to me and 30% to my partner)

Class B shares (just for voting)

votes: "Each share is entitled to one vote in any circumstances"

dividend: "No dividend distribution rights"

capital: dividend: "No capital distribution rights"

(50% of those shares assigned to me and 50% to my partner)

We've got rejection with reason "Class B shares do not mention any dividend rights." (but we covered dividend rights already by Class A shares)

We thought that this is whole point of different classes of shares: Class A shares gives dividend and capital rights and Class B gives voting right

Whate are we doing wrong here?

Thanks

Grumpy_chap

HMRC usually frown on "alphabet" shares when they are clearly contrived for tax avoidance.
You say:

mike12341234 said:

We are starting limited (by shares) company with partner

Who is "We"?
Do you mean business partner or life partner?

jonesMUFCforever

Why make things so complicated - oh yes to avoid the HMRC.

Savvy_Sue

Having voting rights 50/50 isn't necessarily a very good idea anyway. What do you do when you reach stalemate? 

Annisele

I think you'd benefit from taking this to an accountant.

On the face of it, as others have said it looks like you're trying to avoid tax. On the assumption you wouldn't have come on to a public forum asking for advice about that, you must have some other goal in mind - and an accountant will be able to help you structure things so you meet that goal without running foul of the tax man.

(I'm also not convinced that your proposed 'B shares' are shares at all. If they don't entitle the holder to capital or dividends, what 'share' of the company do they represent?)

Sandtree

What are you actually trying to achieve with the voting rights? At a 50/50 split then how do you resolve deadlock? You'd normally avoid this by having a slightly uneven split (so in my fathers firm he had 34% and the other two 33% so they could outvote him collectively but if they each had their own view ultimately his went through) but with just two shareholders weather its 51/49 or 70/30 makes no difference.

Certainly echo the comment of speaking to an accountant, these types of things are red rag to a bull for HMRC. Even if you get it passed initially you'll be on a watch list and investigations cost significant sums even if they end up without a fine etc.

oldbikebloke

the simple solution is to have shares with equal rights in all respects except dividends.
A shares 
B shares 
you own 51 A shares
she owns 49 B shares 

the company articles of association set out the rules on how the directors decide on dividend rates per share class and therefore how you get more money than she will, whilst at the same time you have the controlling interest in the company as "majority" shareholder 

that said, I am surprised Companies House rejected your submission as I can't see anything wrong with it in law. I suspect they misread.