Ordinary Shares And Preference Shares – How Do They Affect Shareholders' Rights?

Companies may issue different classes of the same type of shares (e.g. 'A' ordinary shares and 'B' ordinary shares) or different types of shares (e.g. ordinary shares or preference shares). Different rights can be attached to different classes and types of shares for various purposes such as:

• to distinguish voting rights in a company;
• to prioritize distribution of dividends and assets of a company;
• to issue shares to raise funds with debt features;
• to cater to investors who only want to invest for a specific term by issuing shares which can be redeemed in the future, allowing the investor to exit.

Let's examine the two common types of shares issued by companies and the different rights that could be attached to them.