How to Compare a Class of Share with Another?

 In its purest form, a Hong Kong company can only have one type of share, which is known as ordinary shares. Each ordinary share holder has one vote in every case. Each share has an equal amount of rights to dividends and collection of the remaining value if the company distributes dividends and participates in winding-up. In other words, the more your control and interest in the company on an explicit scale, the more ordinary shares you own.

When a firm has multiple classes of shares, however, the direction of control and the distribution of interests among shareholders becomes more flexible or convoluted.

In general, shareholders create different share classes by balancing the following factors:

Dividend Payment Rights

The share has the option of receiving dividends or none at all. It may only happen in specified circumstances if it entitled to dividends. For example, the share has the right to preferential dividends, which means the shareholder has the right to receive a payout before other share classes, or the right to receive a set income.

Right to Assets Upon Dissolution

Any assets left after the firm's debts are paid can be given to shareholders when a corporation is dissolved (i.e. permanently closed). The distribution of the residual asset may be prioritized differently for different classes of shares. The highest-ranking shares are paid first, followed by the lower-ranking shares. However, because the dissolved company's assets are never sufficient to compensate all shareholders, the second-rank shares are rarely paid.

Voting Rights

A class of share can either have voting rights or not, according to the most basic classification. However, shareholders desire a more detailed system that clearly distributes power of the corporation while maintaining effective management. A rising number of companies are using a voting rights scheme that is weighted or tiered. For example, in certain circumstances or on certain critical subjects impacting the corporation, shares may contain additional voting rights. The ability to vote normally comes with the right to attend the annual general meeting of the firm. Non-voting shareholders, for example, are normally not permitted to attend the general meeting.