Share Redesignation: Could a Simple Change Save You Thousands?

Share redesignation is often overlooked by company directors, yet it can have a significant impact on how profits are distributed and taxed. In many owner-managed companies, it becomes particularly relevant as profit extraction and tax efficiency start to matter more — especially where multiple shareholders are involved.

What Is Share Redesignation?

Share redesignation is the process of changing the name, rights or classification of existing shares in a company without altering the overall share capital.

In simple terms, this might involve converting:

• Ordinary shares into A and B shares
• A single class of shares into multiple classes with different rights

This is different from issuing new shares. The number of shares in issue does not change — instead, the rights attached to those shares are varied.

For example, a company with 100 ordinary shares held equally by two directors may redesignate those shares into:

• 50 A shares
• 50 B shares

Each class can then carry different rights, particularly in relation to dividends.

The ability to vary these rights is what allows share redesignation to play a role in shareholder restructuring and tax planning, rather than simply reflecting ownership.

Why Directors Introduce Multiple Share Classes

In many owner-managed businesses, profits are not always withdrawn equally. However, where a company has only one class of ordinary shares, dividends must usually be paid in proportion to shareholdings.

This can create limitations.

For example, two shareholders holding 50% each would typically receive identical dividends, regardless of their personal tax position, income needs or wider financial circumstances.

Share redesignation allows that rigidity to be removed.

By creating different classes of shares, directors can introduce flexibility into how profits are distributed. This is particularly useful where:

• Shareholders have different income levels or tax bands
• One shareholder wishes to retain profits in the business
• Dividends need to be varied over time rather than paid equally

In practice, this means dividends can be declared on one class of shares without needing to mirror payments across all shareholders, provided the company’s articles support differing dividend rights and dividends are properly declared for each class.

As a result, share redesignation is often used as part of a broader approach to dividend tax planning, rather than as a standalone structural change.

Share Redesignation and Alphabet Shares

One of the most common outcomes of share redesignation is the creation of alphabet shares.

Instead of a single class of ordinary shares, a company may restructure its share capital into:

• A shares
• B shares
• C shares

Each class can carry identical voting and capital rights, but different rights to dividends.

This allows dividends to be declared selectively. For example:

• A dividend may be paid on A shares only
• No dividend is paid on B shares
• A different level of dividend may be declared at a later date

This flexibility is central to many shareholder restructuring strategies in owner-managed companies.

For directors and shareholders, this can provide greater control over how and when profits are extracted from the business, particularly where multiple individuals are involved.

If you’d like to explore this further, our insight on alphabet shares tax planning explains how this structure is commonly used in practice

How Share Redesignation Supports Dividend Tax Planning in Practice

At its core, share redesignation is not about changing ownership — it is about changing flexibility.

Once multiple share classes exist, dividend decisions can be aligned more closely with each shareholder’s individual tax position.

Why this matters in practice

Different shareholders are often taxed differently. For example:

• One director may already be a higher-rate taxpayer
• Another may have unused basic rate band
• A spouse shareholder may have little or no other income

Without share redesignation, dividends must follow ownership percentages.

With share redesignation, dividends can be structured more flexibly across different share classes, within the constraints of company law and tax legislation.

Example: Without vs With Share Redesignation

Scenario	Without Redesignation	With Redesignation
Share structure	50/50 ordinary shares	A shares / B shares
Dividend flexibility	Fixed and equal	Can vary by share class
Tax planning	Limited	Flexible
Outcome	Potential overpayment of tax	More efficient distribution

What this allows

• Dividends to be directed where tax rates are lower
• Timing of income to be controlled more carefully
• Profits to be retained for one shareholder but extracted by another

However, this must always be done within the framework of UK tax legislation. Share redesignation supports planning — it does not override tax rules.

When Share Redesignation Makes Sense

Not every business needs to redesign its share structure. However, there are clear situations where it can be particularly effective.

Common scenarios

Husband and wife companies – Where both spouses are shareholders but have different income levels, alphabet shares can allow dividends to be directed more efficiently.

Multiple directors with different financial needs – One director may want to extract income regularly, while another prefers to leave profits in the business.

Growing businesses approaching higher tax bands – As profits increase, flexibility becomes more valuable in managing personal tax exposure.

Preparing for future restructuring – Introducing different share classes early can make future changes easier to manage.

Situations where caution is needed

Share redesignation is not always appropriate.

It may be less effective or require careful structuring where:

• The arrangement could fall within settlements legislation, particularly where income is diverted without a genuine transfer of beneficial ownership
• Shareholders do not genuinely hold different economic interests
• Dividends are not properly documented or justified
• The structure is created without updating the company’s articles

In practice, many issues arise not from the redesignation itself, but from how it is implemented.

How the Share Redesignation Process Works

While the concept of share redesignation is relatively straightforward, the implementation must be handled correctly.

Understanding the share redesignation process ensures the structure works as intended both legally and for tax planning purposes.

Typical steps involved

1. Review existing share structure and articles

Confirm whether the current articles support multiple share classes or require amendment.

2. Approve the redesignation

A shareholder resolution is usually required.

3. Update company records

Registers must reflect the new share classes.

4. Notify Companies House

A form SH08 is typically filed to notify Companies House of the redesignation, alongside any required updates to the statement of capital.

Common Mistakes When Changing Share Structure

Frequent issues we see

• Articles not updated to support the new structure
• Dividends treated the same despite multiple share classes
• Tax impact not considered before restructuring
• Ignoring wider tax legislation
• Overcomplicating the share structure unnecessarily

A well-structured share redesignation should make things clearer and more flexible — not more complicated.

How Nichols & Co Can Help

Share redesignation sits at the intersection of legal structure and tax planning. While the process itself is administrative, the real value lies in how that structure is used.

We work with directors and shareholders to:

• Assess whether share redesignation is appropriate
• Structure alphabet shares effectively
• Align dividend strategy with personal tax positions
• Ensure compliance with company law and tax legislation

You can explore our tax compliance and planning services here, or contact our team directly to discuss your circumstances

---