A South African company can create different classes of shares, each carrying different rights to vote, to receive dividends and to share in the assets on a winding-up. The classes and their rights must be set out in the Memorandum of Incorporation. Most small companies have a single class of ordinary shares and need nothing more — until they bring in an investor, want to pay dividends unequally, or want to give away economic value without giving away control.
The moment you need a second class is usually the moment you are already negotiating, which is the wrong time to discover your MOI does not allow it.
What actually differs between classes?
Three rights, and a class can vary any of them.
| Right | What it controls |
|---|---|
| Voting | Who decides things — and in what proportion |
| Dividends | Who gets paid, how much, and in what order |
| Return of capital | Who gets what on a winding-up, and who ranks first |
An ordinary share typically carries all three in equal proportion: one vote, a proportionate share of dividends, and a proportionate share of what is left at the end.
Every other class is a variation on removing or prioritising one of those.
The classes you are likely to meet
Ordinary shares. The default. Vote, dividend, residual claim on winding-up.
Preference shares. A preferential right to dividends — typically a fixed rate, paid before ordinary shareholders receive anything. Often with limited or no voting rights, on the logic that the holder is closer to a lender than an owner. Cumulative preference shares carry unpaid dividends forward; non-cumulative do not.
Redeemable shares. Capable of being bought back by the company on defined terms. Used where an investor wants a defined exit.
Convertible shares. Convert into another class on defined events — commonly used in investment rounds.
Non-voting or limited-voting shares. Economic rights without control. The mechanism founders use to bring in money or reward staff without diluting decision-making.
"Alphabet" shares — A, B, C ordinary. Same in most respects but distinguishable, allowing dividends to be declared differently between them. Frequently used in family and multi-founder businesses so that shareholders can be paid unequally without changing the shareholding.
When would a small company actually need this?
Four situations, and outside them one class is right.
Bringing in an investor. Investors routinely want preference on dividends and on a winding-up, plus specific consent rights. Their term sheet will assume a class structure exists or can be created.
Paying shareholders unequally. Two founders holding 50/50 who want to draw different amounts have a problem with a single class, because a dividend must generally be declared to the whole class proportionately. Alphabet shares solve this properly, where a loan account or an irregular salary would create tax problems. See salary or dividends.
Giving equity without control. A key employee or a family member gets economic participation through non-voting shares while decision-making stays put.
Planning a defined exit. Redeemable shares give a mechanism for the company to buy an investor out on agreed terms.
If none of these apply to you, do not create classes for their own sake. They add complexity to every future transaction, every valuation and every dividend declaration.
The MOI decides everything
This is the constraint people run into.
The classes of shares a company may issue, and the rights attaching to them, are set out in the MOI. A company cannot issue a class its MOI does not provide for.
Which means:
Check your MOI before promising anything. A standard MOI generally provides for a single class of ordinary shares. If you have agreed to issue preference shares to an investor and your MOI does not allow them, you have work to do before you can complete.
Changing the MOI requires a special resolution and a filing at CIPC. That takes time you may not have in a live transaction.
Varying the rights of an existing class has its own requirements and generally needs the consent of the class affected — you cannot simply reduce what somebody already holds.
See what is an MOI and do you need a custom one.
Authorised versus issued
Two different numbers that people constantly conflate.
Authorised shares are the maximum the company may issue, per class, as set out in the MOI. They are a ceiling, not ownership. Unissued authorised shares belong to nobody.
Issued shares are those actually held by shareholders. Only these carry rights and only these count for control.
A company with 1,000 authorised ordinary shares and 100 issued has 900 available to issue — and a shareholder holding 100 of the 100 issued owns 100% of the company, not 10%.
Two practical consequences.
Running out of authorised shares stops a transaction dead. Increasing them means amending the MOI, with a special resolution and a filing.
Issuing from the unissued pool dilutes existing shareholders, which is exactly why the MOI and any shareholders' agreement usually control who may authorise it. See how to issue shares to a new shareholder.
What has to be recorded?
Class is not optional detail — it is part of what a shareholder holds.
The securities register must record the class, not just the number. A register that says "500 shares" without saying which class is ambiguous at precisely the moment ambiguity is expensive.
Share certificates must state the class where more than one exists.
Board and shareholder resolutions authorising each issue should identify the class.
And beneficial ownership filings need to reflect the reality of who ultimately controls — which classes and voting rights directly affect. See do you need share certificates and what is beneficial ownership.
The mistakes
Creating classes with no clear purpose. Complexity that has to be explained in every future transaction.
Agreeing a structure the MOI does not permit, and discovering it during closing.
Not recording the class in the register, so nobody can say with certainty what anyone holds.
Assuming non-voting means no rights. A non-voting shareholder still has statutory protections, and certain matters may still require their consent.
Ignoring the tax and accounting treatment. Some preference share arrangements are treated as debt rather than equity for tax purposes, with materially different consequences. Take advice before creating one.
Using classes to solve a problem a shareholders' agreement should solve. Deadlock, exit and valuation belong in an agreement. Share classes are a blunt instrument for those. See what is a shareholders' agreement.
Frequently asked questions
Can a South African company have different classes of shares? Yes. The classes and the rights attaching to them — voting, dividends and return of capital — must be set out in the Memorandum of Incorporation. A company cannot issue a class its MOI does not provide for.
What is the difference between ordinary and preference shares? Ordinary shares typically carry full voting rights, a proportionate dividend and a residual claim on winding-up. Preference shares carry a preferential right to dividends, often at a fixed rate and paid first, frequently with limited or no voting rights.
Can I pay one shareholder a bigger dividend than another? Not within the same class, because a dividend is generally declared to the class proportionately. Different classes — often "alphabet" A, B and C ordinary shares — allow dividends to be declared differently.
What is the difference between authorised and issued shares? Authorised shares are the maximum the company may issue as set out in the MOI. Issued shares are those actually held by shareholders. Only issued shares carry rights and count for control.
Can I give someone shares without giving them a vote? Yes, through non-voting or limited-voting shares — provided the MOI allows that class. It is the usual mechanism for giving economic participation without control.
What if my MOI does not allow the class I need? The MOI must be amended, which requires a special resolution and a filing at CIPC. Check before agreeing terms, because in a live transaction that delay matters.
Do share certificates have to state the class? Yes, where the company has more than one class — and the securities register must record it too. A register showing a number without a class is ambiguous.
Are preference shares treated as equity for tax? Not always. Some preference share arrangements are treated as debt for tax purposes, with materially different consequences. Take advice before creating one.
Check the MOI before you agree the deal
The expensive version of this is agreeing a share structure with an investor, a family member or a key employee, and then discovering that the company's own constitution does not permit it — with a special resolution and a CIPC filing standing between you and closing.
Smartbook checks what your MOI actually allows, handles the amendment and CIPC filing where a new class is needed, and keeps the securities register and certificates recording the class properly.
Get your share certificates and register sorted — free →
File your beneficial ownership — R499/year →
Last reviewed: 28 August 2026. Written by the Smartbook team — SAIPA and SAICA accredited, SARS registered tax practitioners. Creating or varying share classes is legal work with tax consequences — have the MOI amendment drafted by an attorney and take tax advice on any preference share arrangement. General guidance, not legal advice.
Primary sources: Companies Act 71 of 2008 · CIPC · SARS