Summary
- A non-voting share is a class of shares that gives an investor ownership and economic rights but no voting rights at shareholder meetings.
- Companies often issue them to raise capital or reward employees while allowing founders to retain control of decision-making.
- Despite no voting power, holders may still receive dividends, sale proceeds or information rights depending on the company’s constitution.
- This guide explains non-voting shares for business owners in Australia, outlining how they work and why companies use them, prepared by LegalVision, a commercial law firm that specialises in advising clients on corporate structuring.
- It provides a practical explanation of shareholder rights, control considerations and how share classes are structured in practice.
Tips for Businesses
Use non-voting shares to raise capital without losing control. Clearly define rights in your constitution and shareholder agreements. Set out dividend and information rights upfront. Ensure investors understand limitations. Review your share structure regularly to align with growth and governance needs.
A non-voting share is a class of share that gives an investor a financial interest in a company without the right to vote on shareholder decisions. While the holder cannot influence management or control, they may still receive dividends and a share of proceeds if the company is sold. This article explains what non-voting shares are and why companies issue them.
What is a Non-Voting Share?
Typically, the main types of shares that a company can issue are:
| Ordinary Shares | These are the most common classes of shares issued by Australian companies. They generally give shareholders the right to attend meetings, vote, and receive dividends. This class of shares generally do not carry any special or preferred rights over other shareholders. |
| Preference Shares | As the name suggests, these shares have preferential rights attached. Preference shareholders will often have priority over ordinary shareholders to receive dividends and distributions of the company’s assets on winding up. |
| Non-Voting Shares | A non-voting share is a share in the capital of a company that belongs to a class that has no voting rights. This is distinct from, for example, an ordinary share, which gives the shareholder standard voting rights in proportion to their shareholding. Upon issuing shares to a shareholder, the subscription documents and share certificate will specify the class of shares. |
Why Have Non-Voting Shares?
A company will typically issue this type of share to individuals who want to invest in the company’s profitability and success without the benefit of voting rights or a say in the management or control of the company. For example, a company may issue non-voting shares to employees because it wants them to benefit from dividends or distributions of profits from a sale. However, they do not want them to participate in decision-making.
Non-voting shares often arise when company founders or directors seek to raise new share capital without diluting their control. In such cases, they often issue large numbers of non-voting shares while keeping control of the original voting stock. Thus, issuing non-voting shares allows the principal shareholders to retain control of the company whilst multiplying the number of shareholders.
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Rights of Non-Voting Shares
The company constitution should set out all share class rights and any restrictions attached to them. Also, the company or board resolution may detail further terms of the issue.
A company can also create new classes of shares or vary existing classes of shares if required. But, again, this will depend on the rules set out in the company’s constitution or shareholders’ agreement.
Additional Rights to Non-Voting Shares
Typically, the non-voting stock has other rights that compensate for its lack of voting powers. For example, some preferred stocks may have a guaranteed dividend but are non-voting, offering investors the upside of guaranteed returns while giving the Company greater decision-making flexibility.
Dividend Rights
Non-voting shareholders typically retain necessary economic rights despite lacking voting power. Dividend rights allow non-voting shareholders to receive distributions from company profits, though the company constitution may specify dividend rates or priorities different from those for ordinary shares.
Pre-emptive Rights
Pre-emptive rights give non-voting shareholders the opportunity to maintain their proportional ownership by purchasing new shares before they are offered to external parties, thereby protecting their economic interest in the company from dilution.
Information Rights
Information rights ensure non-voting shareholders can access the company’s financial statements, annual reports, and material information about its performance, allowing them to make informed investment decisions despite having no say in company management.
Practical Implementation
Implementing non-voting shares requires several key steps and documentation, depending on the company’s constituent documents.
Generally, the company must first amend its constitution to create the new share class, specifying the exact rights and restrictions that apply to the new shares. The amendment of the constitution must be approved by at least 75% of the shareholders’ votes.
Once approved, the directors should pass a resolution authorising the issue of non-voting shares, detailing the number of shares, issue price, and specific terms applicable to the class. The company may be required to follow the pre-emptive rights procedure and have the existing shareholders waive these rights.
Each incoming shareholder should sign a subscription agreement that outlines the rights and limitations of non-voting shares to ensure incoming shareholders understand their position, while existing shareholders’ agreements may need updating to address how non-voting shares interact with existing arrangements.
Holders of Voting Shares vs Non-Voting Shares
From an economic standpoint, either type of share will benefit a company, as the buying and selling of shares generate income for the business. Even shareholders who own non-voting shares still get to own a piece of the business. The key difference between voting and non-voting shares ultimately comes down to the following:
- the level of management;
- control; and
- influence a shareholder will have over day-to-day operations.
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Key Takeaways
Non-voting shares give companies a flexible way to raise capital without giving up control. While these shares do not give shareholders a say in management, they often come with important economic benefits, such as dividends and information rights. For founders and existing voting shareholders, this structure preserves decision-making authority while still allowing broader participation in the company’s financial success. Ultimately, choosing to issue non-voting shares depends on a company’s goals, its governance structure, and the commercial arrangements it wishes to put in place.
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Frequently Asked Questions
Usually yes, although dividend rates or priorities may differ depending on the company’s constitution.
Sometimes. Certain classes may gain voting rights in specific situations if this is set out in the company documents.
Yes, non-voting shareholders may have information rights, such as access to financial statements and reports, depending on the company’s constitution and share terms.
Yes, non-voting shares can include additional rights, such as priority dividends or pre-emptive rights, depending on how the company structures the share class.
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