Why the B Ordinary (Non-Voting) Share Class is the most common share class granted to option holders
Firstly, it's worth noting that options are not shares, they are a right to get shares at some point in the future subject to the vesting criteria and the exercise conditions set by the company. It is also important to understand that it is the company's discretion to select the share class that the employees will receive. The aim of this guide is to clarify the difference between granting Ordinary share class and B Ordinary (Non-Voting) share class.
Ordinary shares tend to have full voting and dividend rights, meaning that employees are able to benefit from voting in decision making and dividend distribution when they become shareholders in the company. If this is the intention of the company then the Ordinary share class is suitable for the options shares.
Some companies prefer to grant option shares for a share class that might have less share class rights and this could be for various reasons, including restricting voting powers or securing a higher discount in the EMI Valuation.
On SeedLegals we see most companies setting up options for B Ordinary (Non-Voting) shares, albeit you can call the share class a different name if you wish.
B Ordinary (Non-Voting) is usually the name given to the shares that rank lower than Ordinary shares due to their lack of voting rights. They may also not carry the rights to dividends if decided upon by the Company.
Non-voting shares are usually given to employees, consultants, or advisors, as the shares can be sold at a later date for a profit but restrict decision-making capabilities within the company beforehand.
If you wish to grant B Ordinary (Non-Voting) shares to your option holders, you need to ensure the share class is created with the requisite documents. Our video and guide here explain how to create the share class with us on SeedLegals if you haven't already created these off-platform.
Issuing an employee with B Ordinary (Non-Voting) shares allows for a larger EMI valuation discount for the employee share options, as the shares your investors received would have contained voting rights (and potentially dividend rights).
If you have any questions on what share class to issue your option holders, please consult your dedicated Options Expert directly or reach out to our LiveChat team.