Halvorsen & Reith

Share class and class rights structuring for international

Share class and class rights structuring becomes urgent the moment a group needs to give one investor economic rights without control, or control without a matching economic stake, and the existing constitution does not separate the two cleanly. This is the discipline of building distinct classes of shares, each carrying a defined bundle of voting, dividend, transfer and consent rights, and of making sure those rights survive a later amendment, a transfer, or a dispute. Groups usually reach for it at a financing round, a family succession, a joint venture, or a group reorganisation where a subsidiary needs to answer to two different constituencies at once.

A holding company brings in a strategic investor who wants a board seat and a veto over disposals, but no say in day-to-day trading decisions. The founders want to keep operating control while conceding economic upside on a defined set of assets. The constitution as drafted has one class of ordinary shares and no mechanism for any of this, and the round is meant to close within weeks.

This page sets out when the work is triggered, what a properly sequenced engagement produces, and where the boundary of the advisory perimeter sits.

The situation this work addresses

Most groups discover the gap in their constitution at the worst possible moment: mid-negotiation, with a counterparty asking for terms the articles do not contemplate. A shareholder wants preferred dividends before ordinary shareholders see anything. A co-investor wants a class veto over a specific list of board decisions, not a general one. A departing founder wants deferred shares that convert on a milestone rather than a fixed date. Each of these is a share class and class rights structuring question, and each has a correct answer that depends on the constitution already in place, not on the term sheet in isolation.

The underlying group structure matters as much as the single entity. A right created at subsidiary level has to sit consistently with the parent's own corporate governance and with any shareholder agreement already binding the group. Structuring one class without checking the other documents produces a right that looks clean on paper and fails the first time it is tested.

What triggers share class and class rights structuring, and why timing matters

A new share class rarely arrives alone. It is usually bundled with a change in board composition: a director appointment reserved to the new class, a right to remove a director without cause, or a veto held by one class over a defined list of board resolutions. Structuring the shares without structuring the governance rights that travel with them is the most common source of later disputes, because the two were negotiated together and drafted separately.

Timing has a legal consequence, not just a commercial one. Once the amended constitution creating the new class is filed with the relevant registry, the rights it records become effective on the public record and cannot be reversed by a later board decision alone; unwinding or amending them requires running the same shareholder procedure that created them, with the same notice and consent requirements, a second time. A group that files first and papers the shareholder consents afterwards has usually created a defect it cannot cure retrospectively, only prospectively. Groups operating across several entities, including structures set up through vehicles such as those seen in share class structuring in the Abu Dhabi Global Market, face this exposure at every level of the chain, not only at the top.

The trigger is therefore not the commercial agreement itself but the point at which someone has to sign a resolution or lodge a filing that fixes the new rights on the record. Everything upstream of that point is still negotiable. Everything downstream of it is a matter of correction, not amendment, and correction is slower and more visible than getting the drafting right the first time.

What the work produces, and in what sequence

The engagement is sequenced so that each deliverable answers a specific question before the next one is drafted, rather than producing one document that tries to answer all of them at once.

The sequence exists because the fourth item depends on the first three being correct. A resolution pack drafted before the gap analysis is finished routinely asks shareholders to consent to something the constitution does not permit them to grant, which is discovered only when the filing is rejected or challenged. Related work on the shareholder side, including a full shareholders' agreement review, is often run alongside this exercise rather than after it, because the two documents have to agree with each other. Where the new rights depend on a specific board decision, the underlying question of which board resolutions are required for share class and class rights changes is answered before drafting starts, not after.

Where share class and class rights structuring differs by jurisdiction

The mechanics differ more than clients expect, and the differences fall along a few recognisable lines rather than by country name alone. In several civil-law jurisdictions, class rights typically have to be built into the constitution itself and amended through the same formal procedure as any other constitutional change, which means the shareholder consent threshold for creating a class is the same one used for any other amendment. In several common-law jurisdictions, class rights can sit in a separate shareholders' agreement layered on top of a simpler constitution, which gives more drafting flexibility but shifts the enforceability question onto contract law rather than company law, and the two routes are not interchangeable protection for the same commercial term. A right that binds a company when written into its articles may only bind the signatories when written into a side agreement, and that difference decides which route a group should choose for a given right.

Register publicity also varies. Some corporate registries publish the full text of class rights once filed; others record only the existence of more than one class and leave the detail in a document the registry does not publish. This affects a client's confidentiality expectations in ways that are worth checking before drafting starts, not after filing, because a filing closes off the choice: once class rights are lodged with a registry that publishes them, they are visible to any counterparty who searches the record, and that entry cannot be withdrawn, only superseded by a later filing. A comparative view of how enforceable different structures are across jurisdictions is set out in this comparison of shareholders' agreement enforceability, and jurisdiction-specific questions such as how far the articles can restrict share transfers are addressed separately, for example in the position on restricting share transfers under Hungarian company law.

For a genuinely cross-border group, the practical answer is rarely a single template applied everywhere. It is a short list of which jurisdiction's rules govern which entity in the chain, checked before the drafting starts, because retrofitting one jurisdiction's approach onto a subsidiary governed by a different one is where most disputes about class rights actually originate.

What this service does not include

This work maps requirements, drafts the documents that implement them, and assesses the exposure a board carries if it gets the sequence wrong. It does not include acting as, supplying, sourcing or arranging a director, company secretary, nominee shareholder or trustee for any entity in the structure, and it does not include any activity for which a trust or corporate service provider licence is required. That boundary is not a matter of preference. Several jurisdictions in which these structures are built licence the provision of directors and nominee arrangements as a regulated activity, and a firm that is not licensed for it cannot lawfully perform it, however convenient it would be to offer it alongside the drafting.

What the client receives instead is the requirement mapped against the entity's actual constitution, the class rights drafted and cross-checked for internal consistency, the board and shareholder consent sequence set out in the order it is actually required, and an assessment of where the resulting structure exposes a director personally if the rights are challenged later. A client who also needs a director appointed, or a nominee arrangement put in place, needs a separately licensed provider for that specific function, engaged directly and on its own terms.

Frequently asked questions

Who inside the company is responsible for share class and class rights structuring?
The board proposes and approves the drafting, but the shareholders whose consent the constitution requires must actually give it before any class right takes effect. Treating board approval alone as sufficient is the single most common defect found on review.
What evidence should the board keep on share class and class rights structuring?
A dated resolution record, the rights mapping memorandum used at the time, and the version of the constitution in force immediately before the change. Without the "before" version, it becomes difficult to prove what actually changed if a shareholder later disputes the scope of a right.
What happens if share class and class rights structuring is not addressed?
The rights each investor believes they hold end up resting on the commercial term sheet rather than on an enforceable constitutional provision. That gap surfaces at the worst point, usually a dividend decision, an exit, or a dispute between classes, when it is far more expensive to fix than it would have been to draft correctly at the outset.
How often should share class and class rights structuring be reviewed?
At every financing event, every change in group structure, and at minimum once before any transaction that depends on the rights being enforceable as drafted. A class right that was correct five years ago is not automatically correct after a subsequent amendment to the same constitution.
Does share class and class rights structuring change for a foreign-owned company?
Yes, in two respects. The local constitutional formalities still apply regardless of where the shareholders sit, and a foreign parent's own governance documents may impose consent requirements that the local constitution does not mention at all. Both have to be checked, not only the local one.

A holding structure that discovers a defect in its class rights after a filing has already been lodged is not looking at a drafting fix. It is looking at a second shareholder resolution, run through the same procedure as the first, while the earlier filing sits on the public record in the meantime. The appointment terms attached to any director whose role depends on a class right, such as a right of appointment or removal reserved to one class, should be reviewed before that filing is made, not after a dispute forces the question.

Review your appointment terms. Write to info@hreithlaw.com with the jurisdiction and the structure.

Mireille Sandberg is an expert author at Halvorsen & Reith, working on constitutional documents, share class structuring and cross-border governance disputes. Her focus is on the point at which a group's constitution and its shareholder arrangements diverge, and on drafting that closes that gap before it becomes contested. She writes on board authority, class rights and the constitutional mechanics of group reorganisations.

By Jonas Kittel