Fast FAQs

We have friends and relatives wanting to invest in our business. Should we give them normal shares, or special/preference shares?

Companies have to have a basic level of capital that is made up of 'ordinary' shares - though no specific value is required for private companies and many may have only £100 of ordinary share capital. The ordinary shares are normally the ones that carry voting rights (through which the company is controlled), and rights to receive dividends if the company makes profits.

It is perfectly possible to create other types of share, which may have different rights to dividends or votes. For example, preference shares may carry little or no voting rights, but receive the first 'slice' of profits by way of dividend (with the ordinary shares getting anything left over). If your relatives have little interest in active decision making for the company, but would like to know that their investment will see a return before yours does, giving them preference shares may work well. Shares can also be made 'convertible' (which means they can be changed into a different type of share, such as ordinary shares in specified conditions), or 'redeemable' (where the company has to come up with money to return the value of the share to the investor).

Choosing types of equity is like selecting from a restaurant menu. What is right for you will depend on your appetite, and that of your relatives, for risk, returns and a say in the running of the business.

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