When you set up a company, the share structure you choose quietly decides three things that matter enormously later: who controls the business, who gets paid and how much, and how flexibly you can manage tax. Most owners never think about it. They accept a single class of ordinary shares off a $99 online setup and move on.

Then a partner comes on board, an investor wants in, a spouse should be receiving dividends, or you want to reward a key employee, and the structure that was fine on day one is suddenly working against you. Fixing it later can trigger capital gains tax, stamp duty, and legal fees that dwarf what it would have cost to get right from the start.

This guide explains the different classes of shares in an Australian company in plain English, what each one is actually used for, and where business owners most often get it wrong.

What Is a Share Class?

A share class is simply a category of shares that carries a defined set of rights. Every company limited by shares issues shares, and each share carries rights across three main areas: the right to vote, the right to receive dividends (a share of profits), and the right to capital if the company is wound up or sold.

When every share carries identical rights, you have one class. When you want different shareholders to have different rights, you create separate classes and name them (commonly A class, B class, C class, and so on). The class names themselves mean nothing in law. What matters is the rights attached to each class, which are set out in the company constitution and recorded with the Australian Securities and Investments Commission. You can read the basics of how shares work on the ASIC company registration pages.

The Main Classes of Shares in an Australian Company

There is no fixed legal list of share classes. A company can create whatever classes its constitution allows. In practice, a handful come up again and again for Australian business owners.

Ordinary Shares

The standard, most common class. Ordinary shares typically carry one vote each, a right to dividends when declared, and a right to a share of capital on winding up. If your company has one class of shares, they are almost certainly ordinary shares. They give the holder full participation in the upside of the business, and full exposure to its risk.

Preference Shares

Preference shares rank ahead of ordinary shares for dividends and, usually, for the return of capital. They often pay a fixed dividend and frequently carry no voting rights. They are the classic tool for bringing in an investor who wants a priority return and some security, without handing them control of the company. Preference shares can be cumulative (unpaid dividends accumulate and must be paid before ordinary shareholders receive anything) or non-cumulative.

Redeemable Preference Shares

The same as preference shares, but the company can buy them back (redeem them) at an agreed point. Useful when an investor is only meant to be in for a defined period, or when you want a clean, pre-agreed exit built into the arrangement rather than negotiated under pressure later.

Dividend Access Shares

Often a separate class (sometimes non-voting, no rights to capital) created specifically so the company can direct dividends to a particular shareholder. Used carefully and with proper advice, they add flexibility to how profits are distributed. Used carelessly, they attract ATO attention, so this is an area where advice matters.

Non-Voting and Deferred Shares

Non-voting shares give an economic interest without a say in decisions, which suits family members or employees you want to reward financially but not put in the control seat. Deferred shares rank behind other classes for dividends or capital until a condition is met. Both are niche, but they solve specific control and reward problems neatly.

Ordinary vs Preference Shares: The Practical Difference

For most business owners, the real decision comes down to ordinary versus preference shares, so it is worth being clear on the trade-off.

Ordinary shareholders control the company and share fully in its growth, but they rank last if things go wrong and there is no guarantee of a dividend. Preference shareholders give up control and usually give up unlimited upside, in exchange for priority on dividends and capital. In short: ordinary shares are about control and growth, preference shares are about security and priority.

That is exactly why the two are often used together. Founders hold ordinary shares to keep control and capture the growth, while an incoming investor takes preference shares for a protected, priority return. Get that split right and everyone’s interests are aligned. Get it wrong and you have either given away control you did not need to, or promised returns the business cannot sustain.

Why Share Classes Matter for Business Owners

Beyond raising money, the way your shares are structured drives several things that affect you directly:

• Dividend flexibility. Separate classes let the company declare a dividend on one class without being forced to pay the same on every other share. This is central to distributing profits sensibly across a family group or to a holding entity.
• Control. Voting rights decide who runs the company. You can bring in capital or reward people without diluting your control if the structure is designed for it.
• Bringing in partners and investors. The right class lets a new participant share in profit or growth on clearly defined terms, which prevents disputes down the track.
• Succession and estate planning. Different classes can pass economic benefit to the next generation while control stays where you want it.

Share classes rarely work in isolation. They interact with your broader structure, including whether a family trust or a bucket company holds some of the shares. That is where the real tax planning happens, and it is why share structure should never be decided in a vacuum. For the bigger picture, see our guide to business structures in Australia and our comparison of a company versus a trust.

The Risk of Getting Your Share Structure Wrong

This is where the theory becomes expensive. A share structure that was set up without thought, or copied from a template, creates real problems as a business grows:

• You cannot stream dividends. With a single class of ordinary shares held equally, every dividend must be paid in proportion to shareholding. If you own 60% and your spouse owns 40%, you cannot pay them more in a year where it would be tax-effective. The flexibility simply is not there.
• Restructuring later is costly. Changing share structure or moving shares into a trust or holding company after the fact can trigger capital gains tax and, in some states, stamp duty. What would have cost little at setup can cost tens of thousands to unwind.
• Disputes with partners. When rights are not clearly defined by class, disagreements over control, dividends, and exit become messy and sometimes end up in court.
• ATO scrutiny. Dividend access shares and profit-streaming arrangements that are not set up correctly can attract anti-avoidance attention. Dividends also interact with the rules on loans from private companies, so it pays to understand how Division 7A fits with how you take money out.

The common thread is that share structure mistakes are cheap to prevent and expensive to fix. By the time the problem is obvious, the low-cost window has usually closed.

Getting the Entity and Share Structure Right From the Start

The right answer is never “shares” in isolation. It is the right entity holding the right class of shares, designed around both your commercial goals (control, growth, bringing people in) and your investment and tax goals (income flexibility, asset protection, a clean eventual exit).

In practice that often means a company for trading, with some shares held by a family trust so profits can be distributed flexibly, and a defined class for any investor or partner so their rights are clear. There is no single template. The right structure depends on who is involved, where the business is heading, and what you eventually want to do with it.

This is exactly the work Pinnacle does through our business structuring services. As a Melbourne tax accountant and Chartered Tax Advisor, Mina looks at your commercial plans and your tax position together, then designs an entity and share structure that fits, rather than one you have to unwind in three years. If a company already exists, we review whether the current structure still serves you and what it would take to improve it.

Frequently Asked Questions

The ATO explains how dividends and franking work on the ATO dividends page.

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