Share classes and alphabet shares: one company, different treatment for each family member.

Each class can differ on three things: votes, dividends and capital. A class might have full votes and a limited dividend, no votes but a discretionary dividend, or a right to growth above a set value. The rights are written into the articles of association, which are binding on the company. Company law gives wide freedom, and there is no special tax regime for share classes, so the tax result depends on the drafting.

Alphabet shares are separate classes of otherwise similar shares, often called A, B, C and D. Because each class is separate, the directors can declare a dividend on one class and not on the others. That lets the company direct income to the family member or trust best placed to receive it, and retain the rest. It is our preferred way to direct dividends, because it avoids the dividend waivers HMRC can challenge.

A waiver is a shareholder giving up a dividend so that others can be paid more, and HMRC can challenge it as a settlement, taxing the income on the person who gave it up. Alphabet shares achieve the same result more cleanly, because each class has its own dividend right in the articles and the directors declare dividends class by class. The company must still act lawfully and each class needs real rights.

Yes, if the articles say so and the company has enough distributable profits. That is the purpose of alphabet shares. The directors still owe duties to the company, must follow the articles, and should record each decision. They should also think about fairness between family members and about the tax position of each recipient. A shareholders' agreement can set out how the directors are expected to exercise the discretion.

It is risky. HMRC treats shares that are wholly or substantially a right to income, for example non-voting shares with no capital rights, as a settlement that the giver keeps taxing. The Young v Pearce line of cases went against the taxpayer, whereas in Jones v Garnett shares carrying capital rights did not fail. To be safe, each class should carry real capital rights as well as a dividend entitlement.

As many as the family needs and no more. A simple company may have one voting class for the parents and one or two classes for the children. A blended company may add a class for each child and one for a trust, with freezer shares for the older generation. Every extra class adds drafting, valuation and administration, so we start from what the family wants to do and build only the classes that serve it.

Usually not. Non-voting shares let the parents keep control while the children take the growth and dividends, and they reduce the risk of family disputes over decisions. The children's shares can still carry limited rights, for example to a say in changes to their own class. Which family member holds the votes varies, and while the parents usually do, we decide with the family. Voting rights are set in the articles.

Yes. Capital rights can differ widely between classes. Freezer shares might be entitled only to a fixed sum on a sale or winding up, while growth shares take everything above it, and a child's class might share in growth only above a set hurdle. Capital rights also drive valuation, because shares that take the future growth are worth more than shares with a fixed entitlement. The differences must be clear and consistent in the articles.

Nothing automatically. If the articles make dividends discretionary, the directors can leave a class unpaid for years, and its capital value still grows with the company, so the holder benefits when shares are sold or the company is wound up. The risk is family tension if a child expects income, and tax rules still look at the arrangement as a whole. A letter of wishes and a clear dividend policy can manage expectations.

Yes, but the outright gift exception is conditional. Income from shares given to a spouse is taxed on the giver unless the gift is outright, carries the whole of the income, and is not wholly or substantially a right to income. Jones v Garnett, the Arctic Systems case, helped where the shares carried capital rights. A spouse's shares are also aggregated with yours for inheritance tax valuation, so the design should consider both.

In general the shareholders approve changes to the articles by special resolution, which needs 75% of the votes cast, the directors need authority to allot new shares, and changes to existing class rights may need the consent of that class. Because the parents usually hold the votes, they control the process, but the articles and any shareholders' agreement can give other shareholders a say. We check the approvals needed before any new class is issued.

New share issues must be notified to Companies House with a statement of capital showing the classes and their rights, and the company's register of members must be updated. A gift of shares for no consideration does not usually attract stamp duty, though the transfer form should carry the correct certificate. Changes affecting people with significant control are reported within 14 days. We keep the registers up to date as part of the work.

Yes, but with care. Issuing new shares or a new class is straightforward if the articles and approvals allow it. Altering the rights of existing shares is different: in a close company it is treated as a disposition for inheritance tax and cannot be a potentially exempt transfer, and it can be a value shift for capital gains tax. For that reason we plan the classes carefully at the outset.

Yes. Each class is valued on its own rights, on a hypothetical open-market sale between a willing buyer and seller. A class with votes, a class with a discretionary dividend, and a growth class with only hope value above a hurdle will each be worth different amounts. There is no fixed discount for minority holdings. Our team prepares the valuation in-house when shares are created or gifted, and HMRC may examine it.

Yes. The articles can give a class a fixed or capped dividend, for example for the parents' freezer shares, so they receive a set return and nothing more. A fixed dividend is easy to understand, but if shares are given away with only an income right and no real capital entitlement, the settlements rules can tax the income on the giver. We consider the fixed return alongside the capital rights and the effect on value.

Yes, if the class carries a dividend right. Parents holding the voting or freezer class can be paid when they need income and the company has distributable profits, taxed at dividend rates on them. It is income the company could have reinvested, so the amount is a planning choice. Dividends on shares they have not given away are not a reservation of benefit; benefits taken from shares they have gifted can be. Loan repayments are usually the first source of tax-free cash.

No. A, B, C and D are labels. What matters is the rights written into the articles for each class. Two classes called A and B could carry the same rights or very different ones, and the name has no effect on tax. Families commonly use letters for convenience, though some name classes after the family members or generations. Whatever labels are chosen, the articles must set out clearly what each class is entitled to.