The UK and Dual-Class Shares: From Dual-Class Shares Lite to Full Fat

Abstract

The London Stock Exchange’s approach to dual-class shares has meandered over the decades.  Dual-class shares give privileged insiders the facility to hold voting rights that are disproportionately high compared to their economic ownership interests in the company.  At one time, the exchange welcomed dual-class shares with open arms, before first informally prohibiting them, then explicitly proscribing the structure from the erstwhile premium tier, at one time the exchange’s most prestigious segment.  More recently, in the shadow of what some have described as a failing stock market, the UK regulator’s attitude to dual-class shares has softened.  A tentative 2021 relaxation to permit what this paper describes as ‘dual-class shares lite’ gave way to 2024 reforms that foster the admission of genuine dual-class shares companies, described herein as ‘dual-class shares full fat’.  This article outlines the most recent set of UK dual-class shares reforms, critically evaluating the conditions attached to the listing of such firms.  It finds that, overall, the 2024 reforms rectify the flaws of the 2021 modifications, and will be more attractive to founders of innovative, high-growth companies.  However, a concomitant relaxation of related-party transaction regulations that has also taken place could portend a dual-class shares storm around the corner.

Keywords: Dual-Class Stock, Listing Rules, IPOs, High-Growth Companies, Related-Party Transactions, London Stock Exchange, Dual-Class Shares

JEL Classification: G30, G32, G34, G38, K22