How Do You Compare One Share Class to Another?

A Hong Kong company can exist in its purest form with only one type of share, which should be known as ordinary shares. In all circumstances, the shareholder of each ordinary share has one vote. In the event that the company distributes dividends and participates in the winding-up, each share has an equal level of rights to dividends and collection of the remaining value. In other words, the greater your ordinary shareholding, the greater your control and interest in the company on an explicit scale.

On the other hand, if a company has more than one classes of share, the direction of control and interest distribution among shareholders become flexible or complicated.

In general, the shareholders design various classes of share by balancing the following aspect:

Entitlement to Dividends

The share has the right to dividends or no dividends at all. If it entitles to dividends, it may happen only in certain circumstances. For example, the share has the right to preferential dividends, so the shareholder has the right to be paid a dividend before that of other classes of share, or right to get paid at a fixed level.

Entitlement To assets on Winding Up

When a company is dissolved (i.e. permanent closure), any company’s assets left after the company’s debts are paid can be distributed to shareholders. Different classes of share may have different priority to the distribution of the remaining asset. Shares with the highest-ranking are paid firstly, then the lower rank shares. However, the dissolved company always has insufficient assets to pay all shareholders, the second rank shares usually have no payment.

Voting Rights

In the most straightforward classification, a class of share is either carrying voting rights or not. However, the shareholders prefer more specific scheme to spread the company’s control clearly while preserving effective management. A growing number of companies are adopting a weighted or tiered voting rights scheme. For example, shares may carry extra voting rights in certain circumstances or on certain vital matters affecting the company. The right to vote usually go with the right to attend the company’s general meeting. For example, shareholders of non-voting shares are usually not allowed to take part in the general meeting.