The ABC of Alphabet Shares
What is an Alphabet Share?
The term "alphabetical stocks" is widely used to describe different "classes" of stocks identified by a letter; A shares, B shares, etc.
Because dividends are often used as the main source of income for business owners, many companies want the flexibility to distribute dividends that are disproportionate to shareholder ownership. This could be because owners have different brackets or individual tax circumstances.
Dividends are paid by share class, which facilitates this flexibility. For example, a husband and wife who own a company and each has 1 A share that they want to pay a corporate dividend of £ 100,000. With this structure, each must receive £ 50,000 and pay the corresponding income tax on that amount.
If instead, the husband owned 1 A share and the wife 1 B share, different dividends could be paid for each class, that is, the husband £ 40,000 and the wife £ 60,000.
Also, Share B may not have voting rights (non-voting shares), which means that the owner of Share A has full control of the company. This, in turn, allows for more flexible regulation compared to companies with a single share class.
Use of ABC Shares
Alphabet stocks are not limited to just being used for different dividend amounts. They can also be used to grant rights that differ from the rules for common stocks (z pays every shareholder the same dividend. This can be particularly beneficial if one or more of the shareholders is a taxpayer with a higher or additional tax rate and the other or none Are taxpayers.
What Are Company Shares?
A limited liability company must own at least one share that is part of the business. Like cutting a cake, these stocks are essentially like segments of a whole, meaning that the owners can own "parts" of a company. For example, if a company only owns one share, the owner of that share owns 100% of the company. If the company has two shares, each held by different people, they both own 50% of that company.
When starting a limited liability company, we recommend creating 100 or 1000 shares to facilitate the sale or transfer of shares if necessary.
Common shares created when a company was founded have the same voting rights and dividends (distribution of company profits to owners). So if an individual owns 60% of the shares of the company, he/she would have final control of the company (60% of the votes) and would be entitled to 60% of the dividends if they were declared.
Sometimes business owners may want to add shareholders without voting rights and/or without equal dividend rights. This is where the actions of the alphabet come into play.
Alphabet and CGT Shares
Transfers of "Alphabet" shares between married shareholders (or registered partners) are normally covered by TCGA 1992, p. 58 (1). This section allows one spouse to gift the other's shares at a "no gain / no loss" value (as long as the spouses live together). The transferring spouse will acquire the Shares at the original cost of the transferring spouse at the time of the transfer.