Share classes in Australia are categories of shares, each carrying a distinct set of rights around voting, dividends, and what shareholders receive if the company is wound up. When you register a company, you choose which class to issue to each shareholder, and that choice shapes who controls the company and how profits are distributed.
- Most Australian companies start with ordinary shares (ORD). They carry full voting rights, dividend rights, and a share of assets if the company winds up. Simple, clean, and the right choice for most founders.
- Founder shares (FOU) have no inherent legal meaning unless you define them. A Lawpath advisor commonly sees founders who have registered with FOU shares and never converted them before bringing on investors, which creates ASIC complications down the track.
- Preference shares (PRF) are not always the right choice for early investors. Preference shares carry a specific legal meaning under the Corporations Act 2001 (Cth) that gives investors priority over founders. This may not be what you intended when you used that template.
- A and B class shares let you separate voting rights from dividend rights. This is the most common structure for family trusts and businesses where one shareholder runs the company day-to-day and another receives income distributions.
- Changing share classes later is possible but not trivial. It requires ASIC forms, company resolutions, and in some cases a constitution amendment. Getting the structure right at registration saves real time and money.
What is a share class in Australia?
A share class is a defined category of shares in your company where every share in the class carries the same bundle of rights. Those rights typically cover three things: whether you can vote at shareholder meetings, whether you receive dividends, and what you get if the company is sold or wound up.
Under the Corporations Act 2001 (Cth), Australian companies can issue multiple classes of shares, as long as the constitution permits it. Without a constitution, the company operates under the Replaceable Rules in the Act. The Replaceable Rules only recognise ordinary shares. If you want multiple share classes, you need a constitution that defines each one.
Share class codes are the acronyms ASIC uses to label each class in the company register: ORD for ordinary, PRF for preference, FOU for founder, and so on. When you register a company through Lawpath, these codes appear in the share allocation step.
What are the different types of share classes in Australia?
Here is a comparison of the most common share classes. The rights shown are the defaults; your constitution can modify them.
| Class | Code | Voting | Dividends | Winding up priority | Best for |
|---|---|---|---|---|---|
| Ordinary | ORD | Yes | Yes (discretionary) | Residual (after preferences) | Most companies at registration |
| Founder | FOU | Yes (if defined) | After ordinary (if defined) | Residual | Startups planning a future ORD conversion |
| A Class Ordinary | AORD | Yes | Yes | Residual | Active founders/directors |
| B Class Ordinary | BORD | No (typically) | Yes | Residual | Silent investors, family members, trust distributions |
| Preference | PRF | Limited | Fixed, priority | Before ordinary shareholders | External investors wanting capital protection |
| Cumulative Preference | CUMP | Limited | Fixed, accumulates if unpaid | Before ordinary shareholders | Investors requiring dividend certainty |
| Redeemable Preference | REDP | Limited | Fixed, priority | Before ordinary shareholders | Founders injecting capital they want returned |
The rights in the table above are defaults. Your company constitution controls the specific rights attached to each class you issue.
What are ordinary shares (ORD) in Australia?
Ordinary shares are the most common share type in Australia. When founders, investors, or commentators talk about “shares” in a private company, they almost always mean ordinary shares.
ORD shareholders get four standard rights: the right to receive notice of and attend general meetings; the right to vote on company matters (one vote per share unless the constitution says otherwise); the right to receive dividends when declared by the directors; and the right to a proportional share of surplus assets if the company winds up.
For most Australian small companies, ordinary shares are the right choice at registration. They are clean, well-understood by investors and accountants, and carry no hidden complications. If you are registering a company with two co-founders and no outside investors on day one, ORD is almost certainly where you start.
What are A class and B class shares?
Some companies create multiple classes of ordinary shares, each with slightly different rights. The label (A, B, C) does not do anything by itself. The rights attached to each class are what matter, and they are set out in your constitution.
A common structure for small businesses with family involvement: A class ordinary shares carry full voting and dividend rights (issued to the active director running the company), while B class ordinary shares carry dividend rights but no voting rights (issued to a spouse or family trust). This lets you distribute income for tax purposes while keeping day-to-day control with the active director.
This structure is particularly common in construction, trade, and professional services businesses. It is also where disputes arise. Advisors commonly see B class shareholders who didn’t fully understand they had no vote, and A class shareholders who later want to change dividend entitlements. A shareholders agreement that spells out the rules is worth the investment.
What are founder shares (FOU)?
Founder shares (FOU) are a share class issued to the founders of a company at registration. They are essentially ordinary shares, but with features you define in your constitution or shareholders agreement: vesting periods, acceleration clauses, and low par value being the most common.
The important thing to understand: FOU shares have no inherent legal meaning in Australia. A class of shares gets its rights from your constitution or shareholders agreement, not from the name. If you register a company with one FOU share and never define what rights attach to it, you have a share with no clearly defined rights at all.
The standard features founders attach to FOU shares include:
- A vesting schedule (typically four years with a one-year cliff)
- An acceleration clause that speeds up vesting if the founder is terminated without cause
- Low or negligible issue price, keeping upfront cost minimal
- An expectation that FOU shares will convert to ORD before outside investors come in
That last point is where founders regularly run into trouble. It is worth a dedicated section below.
How do you convert founder shares to ordinary shares?
Converting FOU shares to ORD shares requires lodging ASIC forms. Getting the sequencing wrong is one of the most common stumbling blocks Lawpath advisors see with early-stage companies preparing to raise capital.
The process involves two separate ASIC forms. Form 211 handles the class conversion (from FOU to ORD). Form 2205 handles any change to the total number of shares on issue (for example, subdividing one founder share into 100,000 ordinary shares). ASIC processes these separately, so you need to sequence them correctly: share subdivision first, then class conversion. Lodging them in the wrong order causes the forms to be rejected, and you may face late lodgement fees.
Once converted, update your share register and issue a new share certificate. Lawpath’s platform handles ASIC notifications, but it pays to understand the process before you are in front of an investor asking why your cap table shows founder shares.
What are preference shares (PRF) in Australia?
Preference shares sit above ordinary shares in two specific situations: dividend payments and capital return on winding up. A preference shareholder gets paid before an ordinary shareholder in both cases, which is why investors in some funding rounds want them.
That priority sounds appealing for investors, but it has a real downside for founders: preference shares give your investors a structural advantage over you in any distribution scenario. If the company is wound up or sold, preference shareholders get their money back first. Ordinary shareholders (the founders) get what is left.
This is a mistake Lawpath advisors see repeatedly across consultation calls. A founder uses an AI-generated template or an online legal tool to produce a share subscription agreement for a seed investor. The template defaults to “preference shares” or “seed preference shares” because that is common in US startup terminology. The founder does not notice, or assumes it is the standard approach. What they have actually done is give their investor priority rights over dividends and liquidation proceeds, often without meaning to. The fix is straightforward: for most Australian seed and angel rounds, ordinary shares are the right instrument. Preference shares are appropriate when investors specifically negotiate for them and you understand the trade-off.
Cumulative preference shares (CUMP)
With cumulative preference shares, unpaid dividends accumulate. If the company does not have enough profit to pay dividends in a given year, the shortfall rolls over and must be paid before ordinary shareholders receive anything. For investors who want certainty of return, CUMP shares offer more protection than standard preference shares. For founders, they create an obligation that grows in poor-performing years.
Non-cumulative preference shares (NCP)
Non-cumulative preference shareholders do not accumulate missed dividends. If the company skips a dividend in a given year, those shareholders simply lose that payment. It does not roll forward. They still receive priority over ordinary shareholders in years when dividends are declared, but there is no catch-up obligation for the company.
Redeemable preference shares (REDP)
Redeemable preference shares can be bought back by the company at a set point or trigger event, usually at the company’s discretion after a vesting period, or automatically upon certain events like a funding round. They carry preference rights (priority dividends, priority capital return) and are redeemable for cash, which makes them useful when a founder or director wants to inject capital into the company and get it back later.
Lawpath advisors see this structure used in construction and trade businesses where a working director wants to fund the company without permanently diluting their equity. The key documentation requirement: the redeemable preference share subscription must be booked as share capital, not income or a loan. Getting this wrong creates accounting and tax complications.
Non-redeemable preference shares (NRP)
Non-redeemable preference shares cannot be bought back during the life of the company. They can only be redeemed if the company goes into liquidation. They carry the same priority rights as other preference shares, but the capital is locked in until wind-up. These are less common in early-stage companies and more likely to appear in mature businesses with established investor relationships.
Which share class should you choose?
The right share class depends on what you are trying to achieve. Here is a practical decision guide for the most common scenarios.
Registering a new company with co-founders: Start with ordinary shares (ORD) for everyone. If you want founder-specific vesting provisions, add them via a shareholders agreement rather than a separate share class. You can always add classes later; removing them is harder.
Bringing in a silent investor or family member: A and B class ordinary shares give you flexibility. A class carries voting and dividend rights (for active participants); B class carries only dividend rights (for passive holders or family members receiving distributions).
Raising capital from an angel or VC: For most Australian angel and seed rounds, ordinary shares are the appropriate instrument. Preference shares add complexity and give investors structural advantages you may not want. If an investor specifically requests preference shares, get legal advice before agreeing. The terms matter a lot.
Injecting personal funds into your own company: Redeemable preference shares can be a clean way to do this, as they allow you to get your capital back out before ordinary shareholders. Your accountant needs to book this correctly as share capital from the start.
Company registered with FOU shares, now preparing to raise: Convert to ordinary shares before your first investment round. Do not wait until a term sheet is on the table.
What Lawpath lawyers see in practice
Share classes are one of those topics where the gap between “what seems obvious” and “what actually happens in practice” is wide. A few patterns that come up repeatedly in Lawpath legal consultations:
The AI template preference shares trap. Founders use an AI-generated share subscription agreement to bring in an early investor. The template, built around US startup conventions, describes the shares as “seed preference shares.” The founder does not recognise that “preference shares” carries a specific legal meaning in Australia under the Corporations Act: priority dividends, priority capital return, and potential restrictions on the founder’s own distributions. Lawpath advisors regularly assist founders in removing these references and reissuing ordinary shares. The fix is straightforward once identified; the problem is that most founders do not identify it until a lawyer reviews the document.
FOU shares that never got converted. A founder registers a company with a single founder share, raises capital via SAFE notes, then tries to issue shares to investors without converting the FOU to ORD first. ASIC requires the share subdivision (increasing the number of shares) and the class conversion (FOU to ORD) to be lodged separately and in the right order. Getting the sequencing wrong results in rejected forms and delays. The standard approach: convert and subdivide before any external investors come in, even if you are raising via SAFEs that have not yet converted.
New share classes issued without notice. In companies without a formal constitution that operate under the Corporations Act Replaceable Rules, directors can issue a new class of shares (say, B class shares) without notifying existing ordinary shareholders, because statutory pre-emptive rights apply to further issues of the existing class, not to the creation of a new class. Existing shareholders who are not paying attention can find their effective ownership diluted without having been consulted. A shareholders agreement with reserved matters and pre-emptive rights clauses is how you prevent this.
Vague terminology in shareholder documents. Share vesting deeds and profit-sharing agreements sometimes refer to “Class A ordinary shares,” a label that looks specific but is meaningless unless that class is defined in your constitution. Advisors regularly see documents where the share class referenced does not match the classes actually on the ASIC register, which can invalidate the document or cause disputes about what was actually promised.
How do you set up share classes in an Australian company?
The process depends on whether you are setting up from scratch or adding classes to an existing company.
At registration: Choose your share class when you register your company. Lawpath’s company registration tool provides the standard classes (ORD, FOU, PRF and others). If you are starting with ordinary shares only, the process is straightforward.
Adding a new class to an existing company: You need a company constitution that defines the new class and its rights. If your company currently runs on Replaceable Rules, you will need to adopt a constitution first (by shareholder resolution). Then pass a resolution to create the new class, and lodge the required ASIC forms when shares are issued in that class.
Converting between classes: Use ASIC Form 211 for class conversions and Form 2205 for changes to the number of shares on issue. As noted above, sequence matters. Update your share register and issue updated share certificates after ASIC has processed the forms.
Record-keeping: Every Australian company is required to maintain a share register under the Corporations Act 2001 (Cth). Your share register must record the class, number of shares, and shareholder details for every share on issue. ASIC must be notified within 28 days of any change to the share structure using Form 484 or the relevant specific form.
Frequently asked questions about share classes in Australia
What share class should I choose when registering a company in Australia?
For most new companies, ordinary shares (ORD) are the right choice. They are simple, well-understood, and carry full voting and dividend rights. You can add more complex share classes later if your business needs them. Starting with ORD also means you are set up correctly for any future investor conversations without needing to convert first.
What is the difference between ordinary shares and preference shares in Australia?
Ordinary shares carry voting rights, dividend rights, and a residual share of assets on winding up. Preference shares receive dividends and capital return before ordinary shareholders, but typically have limited or no voting rights. In Australia, “preference shares” carries a specific legal meaning under the Corporations Act. It is not just a label. If you are issuing shares to an early investor and the document says “preference shares,” those investors have structural priority over the founders.
Can I have different share classes in a Pty Ltd company?
Yes. Australian proprietary limited companies can issue multiple share classes, as long as your company constitution permits it. If your company runs on the Corporations Act Replaceable Rules without a constitution, you will need to adopt a constitution before creating new classes. Each class must have a distinct set of rights. Just giving shares a different letter name without attaching different rights does not create a separate class.
What is the difference between A class and B class shares?
The names A class and B class are labels. The actual difference depends on what rights your constitution attaches to each. Typically, A class shares carry full voting and dividend rights (for active shareholders), while B class shares carry dividend rights only and no voting. This split is common in family businesses and discretionary trust structures where one person runs the company and others receive income distributions.
Do I need a company constitution to issue different share classes?
Yes. Without a constitution, your company operates under the Replaceable Rules in the Corporations Act, which only recognise ordinary shares. To issue multiple classes with different rights, you need a constitution that defines each class. Lawpath has both a constitution for new companies and a proprietary company constitution you can use as a starting point.
Can directors issue new share classes without shareholder approval?
In a company without a constitution operating under the Replaceable Rules, directors have significant flexibility to issue new share classes. This is a governance risk: a new class of shares can be issued without triggering the pre-emptive rights that protect existing shareholders against dilution of their ordinary shares. A shareholders agreement with reserved matters and pre-emptive rights clauses is the protection existing shareholders need.
How do I convert founder shares to ordinary shares?
You lodge ASIC Form 2205 first to change the number of shares on issue (the subdivision), then ASIC Form 211 to convert the class from FOU to ORD. The order matters: ASIC processes these separately, and lodging them in the wrong sequence causes rejections and delays. Once processed, update your share register and issue a new share certificate. Lodge within 28 days of the relevant resolution to avoid late fees.
Do ESOP options have to convert to ordinary shares?
Yes. For employee share options to qualify for tax concessions under the Employee Share Scheme (ESS) rules in the Income Tax Assessment Act 1997 (Cth), the options must convert into ordinary shares when exercised. Non-voting versions may not qualify. If you are setting up an ESOP, get the share class definition right from the start. Amending it after plan rules are issued adds complexity for every existing participant.
Getting your share structure right at the start is one of those things that feels like a minor admin task but has real consequences later. It shapes who controls your company, how profits are distributed, and what outside investors can do when they come in.
Lawpath has helped over 650,000 Australian businesses get their legal foundations in order. You can register your company with the right share class today, or if you already have a company and want to review your structure, book a legal consultation and get it sorted.
