Share classes

Overview

The platform records two security types: Ordinary and Preferred. That is the set, and it is deliberate — they are the two that matter in LBO structures.

This lesson covers what the distinction means economically, how to read it on a cap table, and one important limit on what the cap table can tell you.

What you'll learn

• What ordinary and preferred shares represent

• Why that ordering is the point of a management package

• Why one holder legitimately appears twice

• What the platform does not model

What the distinction means

Ordinary shares carry the standard economic and voting participation. In a management package, participants typically hold ordinary shares in a ManCo.

Preferred shares carry rights that rank ahead of ordinary — a preferential return, a liquidation preference, or similar. In an LBO the sponsor's money often comes in partly as preferred, so that its return has priority over the ordinary equity where the management upside sits.

That ordering is the entire point of a management package: participants hold ordinary equity whose value depends on outperforming whatever the preferred is entitled to first.

Which is why the cap table separates the classes rather than showing one aggregate holding.

Reading them on a cap table

The cap table shows holdings by class, so one holder can appear with both. The sponsor holding ordinary and preferred is normal, not a duplication.

When reading a position, read the classes separately. A holder with a large preferred position and a small ordinary one has a completely different economic exposure from a holder with the reverse, even where the totals match.

What the platform does not model

The economic terms of a preference — the rate, the ranking, the conversion mechanics — live in the legal documentation, not in the platform's security type.

The platform records that a holding is preferred and how much of it there is. The instrument's terms are in the subscription agreement and the articles.

So the cap table gives you the shape of ownership. It does not tell you what the preference is worth, and it should not be read as if it did — particularly by anyone using it to reason about returns.

Common problems

A holder appears twice. Almost certainly once per class. Check the class column before concluding anything.

You are looking for a class that is not there. Only Ordinary and Preferred exist today. A structure needing more is worth raising rather than working around.

You want the preference terms. They are in the documents, reachable from the registry.

Related

• A5.1 — Reading the cap table · where these columns appear

• A5.7 — The registry: tracing a transaction to its signed document · finding the terms

• A6.3 — Share issuance · recording a holding in a given class