Companies issue stock in order to raise money to fund their operations. These shares represent and entitle the holder to a stake of ownership in the company. By purchasing shares, the shareholder is given a certain amount of rights. Depending on the type of share, the holder may be able to share in the company's profitability. This comes in the form of dividends, which are paid at regular intervals during the year. Other shareholders are allowed the right to have a say in the direction of the company. This is true of companies all around the world, whether they're in the United States, Canada, or the United Kingdom.

What kind of shares do companies in the U.K. sell to their stakeholders? Learn more about public limited companies and the different types of shares they issue.

Key Takeaways

  • PLCs issue many different kinds of stock shares such as ordinary shares, cumulative preference shares, preference shares, and redeemable shares.
  • Ordinary shares are like common stock, giving the holder the right to vote.
  • Dividends are paid to cumulative preference and preference shareholders before anyone else.
  • Companies are able to buy back redeemable shares from stockholders at fixed dates or when management chooses.
  • Bearer shares, which came in the form of warrants, are no longer issued.

What Is a Public Limited Company (PLC)?

A public limited company (PLC) is a legal corporate structure in the United Kingdom or the Republic of Ireland that is essentially similar to a publicly-traded company in the United States. Although a PLC may sometimes be constituted as a privately-held company, it is most often a public company. Company shares are freely traded on exchanges. In accordance with U.K. company law, a PLC must have minimum share capital of £50,000 and the PLC designation after the company name.

Much like public companies in the U.S., PLCs usually pay out dividends to shareholders at regular intervals as long as the company generates a profit. Stock shares also confer voting rights to the shareholder at a company's annual general meeting, although voting rights may vary according to the type of shares owned. Ordinarily, the amount of voting power that an investor has corresponds to the amount of stock shares owned.

A PLC is allowed to issue many different kinds of stock shares such as ordinary shares, cumulative preference shares, preference shares, bearer shares, and redeemable shares.

Ordinary Shares

This is the most common type of share issued by a PLC. It is essentially the same as common stock in U.S. equities. Ordinary shares may be subdivided into different classes such as A or B and have different share prices.

These shares allow shareholders the right to vote on issues relating to corporate policy as well as the make up of a company's board of directors. This is why they are also sometimes referred to as voting shares. Shareholders get one vote per share. Other than that, ordinary shares carry no other special rights for the shareholder.

Ordinary shareholders are considered last in line when it comes to repaying their initial investment back. This is especially true when and if a company shuts down or goes bankrupt.

Ordinary shares, like common stock in the U.S., give shareholders the right to vote, but no other special rights.

Cumulative Preference Shares

This share type roughly corresponds to the preferred stock shares of U.S. companies. Like U.S. preferred stock, they come with the stipulation that any scheduled dividends that cannot be paid when due are carried forward and must be paid before the company can pay out ordinary share dividends. So if these shareholders receive their dividends in arrears before preferred stockholders. This applies to any dividends that are paid late or any amount that is not paid in full when due.

Preference Shares

Preference shareholders have the right to be paid dividends prior to owners of other share types. The dividends they receive are at a fixed rate. This means if the company profits and raises its dividend, preference stockholders don't get a raise.

This is a slightly less preferred share type, though. Preference shares do not typically carry voting rights, and generally do not share any of the company's success.

Redeemable Shares

As the name implies, redeemable shares are issued with the shareholder agreeing that the shares can be redeemed, or bought back by the company, either after a certain time period or on a given date. Dates may be fixed or at the discretion of the company's management team.

Redeemable shares may vary according to which party—either the company or the shareholder—has the option to exercise the company buyback provision.

Non-Voting Shares

These shares are like ordinary shares except they carry no voting rights. Non-voting shareholders are also not given the opportunity to attend annual or general meetings.

This type of share is usually issued to employees so that part of their compensation can be paid in the form of dividends. This arrangement usually provides tax benefits for the company and employees. Non-voting shares may also be given to family members of upper management.

Bearer Shares

Bearer shares were another form of shares issued by PLCs in the U.K., but were abolished following the Small Business, Enterprise and Employment Act (SBEE) of 2015.

These shares commonly came in the form of warrants—legal documents entitling the bearer to own the shares designated in the warrant. The warrants normally came with vouchers enabling the bearer to claim any due dividends. Completely transferable, there was no record kept saying who owned the warrant. This meant the owner was able to deal with the shares anonymously. Problems arose, though, if the owner lost the certificate or it was stolen, making legal entitlement difficult to establish.

Once the SBEE was established, companies were not allowed to issue new bearer shares. Those with existing bearer shares were required to cancel them or transfer them to non-bearer shares.