Types of Shares: Ordinary, Preference and Deferred
A plain English guide to ordinary, preference and deferred shares, and why share rights matter before UK investors buy.
Types of shares sounds like a dry legal detail until the rights start to matter. Ordinary, preference and deferred shares can behave very differently. This guide explains what those rights mean before you buy.
The Short Version
- The main types of shares give investors different claims on voting, income and company assets.
- Ordinary shares are the standard shares most private investors buy through a broker or ISA.
- Preference shares usually put income ahead of voting power, but the exact rights depend on the company.
- Deferred shares often have rights that only matter after other shareholders have been paid first.
- Always check the company documents, not just the label attached to the share.
What types of shares means
The phrase types of shares refers to the rights attached to a share. A share is not just a price on a screen. It is a claim on part of a company.
That claim can include voting rights, dividend rights and rights if the company is sold or wound up. Different rights create different risks and rewards.
The main types of shares for UK readers are ordinary shares, preference shares and deferred shares. The UK government guide to shareholders explains the basic idea that shareholders own shares in a company.
The label matters because two shares in the same company can carry different terms. The price alone does not tell you what you own.
Ordinary shares and voting rights
Ordinary shares are the standard shares most people mean when they talk about buying a company. They usually carry voting rights and a claim on dividends.
Among the types of shares, ordinary shares normally give the clearest link to business ownership. If the company does well, ordinary shareholders may benefit through dividends and a higher share price.
The trade-off is that ordinary shareholders sit behind creditors if a company fails. They are usually last in line after lenders, suppliers and tax bills.
Voting rights can still matter, even for small investors. They let shareholders vote on directors, pay policies and major company decisions. Our guide to how the stock market works explains where listed shares fit.
Preference shares and income priority
Preference shares usually give holders a preferred claim on dividends. That means the company may have to pay them before ordinary shareholders receive anything.
Preference shares are one of the types of shares where income can matter more than control. They often carry limited voting rights, or none at all.
Some preference shares pay a fixed dividend rate. Others have terms that change if a dividend is missed. The detail sits in the company articles or prospectus.
That can make them look bond-like, but they are still shares. Income is not guaranteed in the same way as a bank deposit. Capital values can move too.
Deferred shares and special rights
Deferred shares usually have rights that come after another class of shareholder. They may receive dividends only after ordinary or preference shareholders have been paid.
Deferred shares are the least common types of shares for normal private investors. They are more likely to appear in founder structures, restructurings or special company arrangements.
Sometimes deferred shares have very little economic value. In other cases, they may become valuable only if a company hits a target or pays a large surplus.
The name tells you to slow down. It does not tell you enough to make a decision. You need the terms behind the name.
Why share rights matter in practice
Share rights matter because they decide who gets paid, who gets a vote and who carries the most risk. Those details can become important during stress.
A dividend policy is a good example. Ordinary shareholders may expect income, but boards can cut dividends when profits fall. Preference shareholders may have stronger income rights, depending on the terms.
Rights also matter during takeovers or liquidation. A class with priority may receive money before another class. Our guide to what a dividend is explains the basic income side.
The lesson is simple. Do not assume every shareholder is treated the same. The share class decides the starting point.
How to compare share classes before you buy
How to compare share classes before you buy starts with the company documents. For listed companies, check the annual report, investor relations pages and admission documents.
Look for voting rights, dividend rights, conversion rights and priority on winding up. If the wording is hard to understand, that is a reason to be careful.
Also check how your broker holds the shares. Many UK platforms use nominee accounts, where the platform name appears on the register. Our guide to nominee accounts explains that structure.
Finally, compare like with like. An ordinary share and a preference share in the same business may suit different goals. One is not automatically better. If a term is unclear, pause and look for the exact wording.
A Worked Example
Imagine a company has ordinary shares and preference shares. The ordinary shares have votes and may receive dividends if the board declares them.
The preference shares pay a fixed dividend before any ordinary dividend. They do not vote at normal meetings unless a payment is missed.
If the company has a strong year, ordinary shareholders may receive a dividend and benefit from a higher share price. Preference shareholders may simply receive their fixed income.
If the company has a weak year, the preference dividend may take priority. Ordinary shareholders may receive nothing. The example shows why types of shares can change the outcome.
Now add deferred shares. They may receive value only after both other classes have been paid. That could make them almost worthless, unless the company performs very well.
What This Means For You
When you see different types of shares, treat the label as the start of the work. The rights are what matter.
For most UK private investors, ordinary shares will be the main focus. They are the shares most often bought through ISAs, SIPPs and standard dealing accounts.
Preference shares can be useful to understand when income is the main feature. Deferred shares are more likely to need careful reading before you go near them.
Do not buy a share class because the name sounds familiar. Read the terms, check the risks and ask whether the rights match your reason for investing.
This article is for general financial education only. It is not financial advice or personal investment advice. Investments can fall as well as rise, and you may get back less than you invest.
In Plain English
In plain English, types of shares are different versions of company ownership. Some give more voting power. Some give stronger income rights. Some sit far back in the queue.
Ordinary shares are the usual version. Preference shares often have income priority. Deferred shares usually wait behind other classes.
The important point is that the share label is never enough. The terms decide what you own and what could happen next.