CLASSES OF SHARE AND CLASS RIGHTS
Introductory
Classes of shares
(1) For the purposes of these Regulations shares are of one class if the rights attached to them are in all respects uniform.
(2) For this purpose the rights attached to shares are not regarded as different from those attached to other shares by reason only that they do not carry the same rights to dividends in the 12 months immediately following their allotment.
Variation of class rights
Variation of class rights: companies having a share capital
(1) This section is concerned with the variation of the rights attached to a class of shares in a company having a share capital.
(2) Rights attached to a class of a company's shares may only be varied-
in accordance with provision in the company's articles for the variation of those rights, or
(b) where the company's articles contain no such provision, if the holders of shares of that class consent to the variation in accordance with this section.
(3) This is without prejudice to any other restrictions on the variation of the rights.
(4) The consent required for the purposes of this section on the part of the holders of a class of a company's shares is-
(a) consent in writing from the holders of at least three-quarters of the issued shares of that class (excluding any shares held as treasury shares), or
(b) a special decision passed at a separate general meeting of the holders of that class sanctioning the variation.
(5) Any amendment of a provision contained in a company's articles for the variation of the rights attached to a class of shares, or the insertion of any such provision into the articles, is itself to be treated as a variation of those rights.
(6) In this section, and (except where the context otherwise requires) in any provision in a company's articles for the variation of the rights attached to a class of shares, references to the variation of those rights include references to their abrogation.
Benefits:
The dual class share structure allows the founders to acquire protection and simultaneously create an opportunity for long term business development in addition to allowing the founders to increase the capital without losing control. The latter of course would gain more by having a say in matters affecting the company's business together with all the shareholders than by insisting on their opinions in isolation of others.
Possible risks:
The curtailment of other shareholders' voting rights, which can be regarded as a hindrance to their contribution. The shareholders are forced to play an obedient role towards the decisions made by the founders, which might drive them to act against the company's best interests. Similarly, this structure may drive the investors to avoid contributing in the company, which will affect the company's share price in the long run.
Conclusion:
The insistence on priority for the sovereignty of the company's founders over the majority of the voting rights was and remains the main purpose of the dual class share structure. It has become quite obvious that the position of power between the founders and the other shareholders is quite dissimilar. Although legitimate concerns may arise a dual class share structure may facilitate the company's financial development and may increase the likelihood of a good financial performance.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
