The Different Types Of Shares In Australia

When you’re setting up or growing a company in Australia, “what type of shares should we issue?” is one of the most important decisions you’ll make.

The share structure you choose affects who controls the business, how profits are distributed, how you attract and keep talent, and what happens if you raise capital later. Get it right, and you’ll have a flexible foundation for growth. Get it wrong, and you could face messy disputes or expensive rework down the track.

In this guide, we’ll unpack the different types of shares (also called “share classes”) available under Australian law, how they work, and how to choose a structure that supports your goals. We’ll also cover the documents you need so your share rights are legally enforceable and easy to manage.

What Are Shares And Why Do Different Types Matter?

Shares represent units of ownership in your company. A shareholder’s rights are defined by the company’s constitution and any shareholders agreement, and can vary across different classes of shares.

Why does this matter? Because not all owners need identical rights. For example, you might want founders to retain voting control, give new investors a priority on dividends, or offer employees equity without handing over decision-making power. Using different share types lets you match rights to roles and expectations.

In practice, most Australian startups begin with one class of ordinary shares. As the business evolves-bringing on co-founders, seed investors, or key staff-you can create additional classes to meet specific needs. You can read a deeper overview in our guide to Different Classes of Shares.

Common Share Types In Australia (And When To Use Them)

There’s no fixed list in the Corporations Act that you must follow-companies have flexibility to design share classes and rights. That said, these are the most common types used by small businesses and startups.

Ordinary Shares

Ordinary shares are the default. They usually carry full voting rights, rights to dividends when declared, and rights to participate in surplus assets on winding up (after creditors are paid).

They suit founders and long-term owners who are actively involved and expect to share in the company’s growth and decisions.

Preference Shares

Preference shares typically offer a priority (a “preference”) on dividends and/or repayment of capital ahead of ordinary shareholders. Some may be non-voting or have limited voting rights, and can be redeemable or convertible into ordinary shares under certain conditions.

They’re popular with investors who want downside protection and more predictable returns. If you’re considering investor-friendly terms, it’s worth understanding how Preference Shares work in practice.

Non‑Voting Or Limited‑Voting Shares

These shares give the holder economic rights (like dividends) but no say-or a reduced say-in company decisions. They allow you to reward contributors without diluting control of the business.

They’re commonly used for employee equity or family members who support the business but don’t manage it day-to-day.

Redeemable Shares

Redeemable shares can be “bought back” by the company or “put back” by the shareholder under agreed terms (for example, after a certain date or if the holder leaves the business). They can be ordinary or preference in nature.

These are useful where you want a clear exit path for particular shareholders-like short-term investors or leavers-without needing to negotiate a sale later.

Partly‑Paid Shares

With partly‑paid shares, the shareholder is issued shares now but pays the subscription price in instalments (when “called”). Until fully paid, the shares often carry limited rights and the holder remains liable for the unpaid amount.

They can help founders or staff participate in ownership upfront, while managing cash flow.

Founder Shares (By Rights, Not Name)

“Founder shares” aren’t a special legal category-they’re typically ordinary shares with specific rights written into your constitution or subscription terms (for instance, vesting or leaver provisions). You can bake in protections like reverse vesting to align equity with ongoing contribution.

Employee Shares And Options

Employee equity can be delivered via shares, options or performance rights. Options give employees the right (but not the obligation) to buy shares later, often at a set price, once certain milestones or time periods are hit.

If you plan to use equity for hiring and retention, it’s important to consider how those securities fit with your broader cap table and whether they sit under an employee share plan.

Convertible Notes (Not Shares, But Related)

Convertible notes are loans that convert into shares later (often at the next funding round and at a discount). They’re not shares on day one, but they influence your future share classes and dilution. If you issue convertible notes, plan how they’ll convert into your share structure.

How Do You Choose The Right Share Types?

Start with your goals. The “best” structure depends on what you’re trying to achieve in the next 12-24 months and beyond.

Questions To Ask Before You Decide

• Who needs voting control today-and at what milestones might that change?
• Do you expect to pay dividends soon, or reinvest profits in growth?
• Are you bringing on investors who will want priority returns or downside protection?
• Will you use equity for staff incentives, and do you want to limit their voting rights?
• Do you need mechanisms to buy back equity from leavers or short-term backers?

Map these answers to share classes. For example, founders might hold ordinary shares, early investors might receive preference shares with defined rights, and employees might receive non‑voting shares or options.

It’s also smart to think about future rounds. If venture capital is on the horizon, expect investors to request their own class of preference shares and protective provisions. Designing your first classes with that in mind can save renegotiation later.

When you’re ready to allocate equity between founders and early contributors, make sure you document the process carefully. Our practical overview on how to allocate shares covers the key steps and considerations.

Make Share Rights Legally Work: The Documents You’ll Need

Creating share classes on paper is only half the job. To make those rights real, they need to be reflected consistently in your company’s core documents and share registry records.

Company Constitution

Your Company Constitution sets the rules for your company, including how different share classes work, voting procedures, dividend rules, buy‑backs, and more. While you can rely on replaceable rules in the Corporations Act, most growing businesses adopt a tailored constitution for clarity and flexibility.

Shareholders Agreement

A Shareholders Agreement sits alongside the constitution and outlines decision‑making, share transfers, leaver provisions, pre‑emptive rights, dispute resolution and other practical “what if” scenarios. It’s the document your shareholders will look to if expectations diverge-so it’s critical to get it right.

Share Subscription Terms

When issuing new shares, the subscription terms should spell out the class, price, payment terms (including partly‑paid calls), vesting or conversion mechanics (if any), and any special rights. Consistent, plain-English subscription terms help avoid misunderstandings and reduce friction in future audits or due diligence.

Share Certificates & Register

Record‑keeping matters. Issue Share Certificates to new holders and update the company’s share register promptly. Maintaining clean, accurate records makes later events-like an investment round or exit-much smoother.

Board And Shareholder Resolutions

Creating new classes, changing rights, or issuing shares typically requires formal board and sometimes shareholder approval. Document these decisions through properly drafted resolutions so there’s a clear legal trail.

Dividend Policy

Different classes may have different dividend entitlements. If you plan to pay distributions, align your approach with your constitution and class rights, and make sure you understand how dividends work under Australian law.

Changing Or Adding Share Classes Later: What’s Involved?

Companies evolve. You might start with one class and introduce others later to accommodate investors, new leadership, or employee incentives.

Typically, you’ll need to:

• Check your current constitution to confirm the process for creating or varying class rights.
• Draft clear terms for the new class (dividends, voting, conversion/redemption, priority on winding up).
• Pass the required board and shareholder resolutions, including any special resolutions if you’re varying existing class rights.
• Update your constitution if needed and file any ASIC notifications relevant to the changes or new issues.
• Issue certificates and update the share register.

Because changes to class rights can affect valuation, investor expectations and control, it’s wise to get advice before you push ahead. We can help ensure your documentation and process meet Corporations Act requirements and reflect what’s been agreed.

Practical Scenarios: Mapping Share Types To Common Goals

Scenario 1: Two Founders, No External Capital (Yet)

Start with ordinary shares split according to an agreed vesting schedule. Use your constitution or subscription terms to include reverse vesting, and capture decision‑making rules in a Shareholders Agreement. Consider creating a small non‑voting class for future employee equity so you don’t need to overhaul documents later.

Scenario 2: Bringing In A Seed Investor

Offer a preference share class with defined dividend rights and a liquidation preference (i.e., first claim on proceeds on exit), and limited voting on day-to-day matters. Protect founders’ control on ordinary matters while providing investor protections for key decisions.

Scenario 3: Rewarding Key Employees

Use non‑voting shares or options under an employee equity plan. Tie vesting to time and performance. Keep the class economically aligned with company growth, while preserving founders’ voting control.

Scenario 4: Planning A Buy‑Back Path For Leavers

Issue redeemable shares with clear redemption triggers and price mechanisms. Ensure consistency across your constitution, subscription terms and Shareholders Agreement so the exit path is enforceable and fair.

Compliance Tips And Common Pitfalls

Here are a few practical points we see small businesses trip over when setting up share classes-and how to avoid them.

• Misaligned documents: If your term sheet, constitution and Shareholders Agreement don’t say the same thing, expect confusion. Align the wording across all documents.
• Ambiguous rights: If dividend or voting rules are unclear, future decisions get harder. Define rights in plain English and use examples where helpful.
• No roadmap for transfers: People move on. Build in pre‑emptive rights, good leaver/bad leaver rules, and transfer mechanics from day one.
• Ignoring future rounds: If investors are likely later, make sure your current classes won’t block a standard preference round.
• Poor record‑keeping: Keep your share register, certificates and resolutions up to date. Sloppy records slow down deals and create risk.
• Issuing without authority: Check your constitution for share issue powers and procedural steps before issuing anything.

If you’re at the stage of designing your cap table, a quick sanity check can save you from expensive restructures later. Our team regularly reviews proposed terms against market practice and your strategic goals.

What Else Should Small Businesses Consider About Shares?

Share classes are part of a bigger picture: ownership, control, and incentives. As you decide on your approach, keep these broader items in mind.

Governance And Decision‑Making

Votes aren’t the only thing that drives control. Your Shareholders Agreement can reserve certain “big ticket” decisions (like issuing new shares, selling the business, or appointing directors) for approval by a defined majority or by a particular class. Make sure your governance settings match your share rights.

Investor Expectations

Even at early stages, setting a clear, fair framework builds confidence. If you’re contemplating a raise, structure now with future investors in mind-especially around liquidation preferences, anti‑dilution, information rights and board composition.

Employee Equity And Retention

Equity can be a powerful retention tool, but only if employees understand what they’re getting. Keep your plan simple, explain vesting and rights plainly, and make sure the documents match the message.

Issuing And Allocating Shares

Whether you’re bringing on a co‑founder or a micro‑investor, follow a consistent process: board approval, subscription agreement, payment/satisfaction of consideration, entry on the register, issue of certificate. If you’re just setting up your cap table, our overview on how to allocate shares is a good starting point.

Core Legal Setup

Before issuing any shares, make sure your Company Constitution supports multiple classes and clearly sets out rights and processes. Pair it with a robust Shareholders Agreement to handle transfers, leavers and decision‑making in real life scenarios.

Key Takeaways

• Different types of shares let you balance control, returns and incentives across founders, investors and employees.
• Common classes include ordinary, preference, non‑voting, redeemable and partly‑paid shares, each suited to different goals.
• Choose share classes by mapping rights to your strategy: who should control votes, who needs priority on dividends, and how you’ll handle exits.
• Lock in share rights through a tailored Company Constitution, a clear Shareholders Agreement, consistent subscription terms, and accurate records like Share Certificates.
• Plan ahead for funding rounds and employee equity so today’s decisions don’t block tomorrow’s options-our guide to Different Classes of Shares has a helpful overview.
• If you expect to pay distributions, ensure your class rights align with how dividends work and are reflected consistently across your documents.

If you’d like a consultation on setting up the right share types for your company, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.