Corporate and Business Law (Global) · Share capital

Variation of Class Rights in Company Law for ACCA

Updated 11 October 2026 · Fact-checked

Class rights are the rights attached to one class of shares, such as dividend, voting or capital rights. They can be varied only by the procedure in the constitution or, failing that, with the required class consent, commonly three-quarters in value or a special resolution at a class meeting. Dissenting holders may be able to ask the court to cancel the variation.

Understand Variation of Class Rights

A company can issue shares in different classes. Each class carries its own class rights. Examples are a fixed preference dividend, extra votes, or priority to repayment of capital if the company is wound up.

These rights are a bargain made with the holders. The company cannot simply rewrite them by a vote of all shareholders. Otherwise a majority of ordinary shareholders could strip a preference class of its rights. So the law requires the affected class to agree to the change.

The usual rule works in layers. First, follow any procedure set out in the articles or in the terms of issue. If there is none, many legal systems require the consent of holders of a stated proportion of the class, commonly three-quarters in nominal value, or a special resolution passed at a separate class meeting. The UK Companies Act model is often used as the example. Always apply the rule given in the question.

Not every change is a variation. A variation changes the rights themselves. A change that only affects how useful or valuable the rights are in practice is usually not a variation. Issuing new shares that rank equally with an existing class is the standard example. It dilutes the class but leaves its rights unchanged, so class consent is not usually needed.

There is also protection for the minority of the class who disagree. In the common model, holders of at least a stated percentage of the class (often 15%) who did not consent can apply to the court within a short time (often 21 days). The court can cancel the variation if it is unfairly prejudicial to the class. Otherwise it confirms the variation. Until the court decides, the variation does not take effect.

Key formulas to remember

Consent test (default rule): Votes in favour ÷ nominal value of the class ≥ 75%; Used where the articles give no procedure. The alternative is a special resolution at a separate class meeting. Check which one the question states.
Objector threshold: Dissenting holders' shares ÷ issued shares of the class ≥ 15%; Commonly applied model. The objectors must not have consented or voted in favour. Use the percentage given in the question.
Time limit to object: Application to court within 21 days of the consent or resolution; Commonly applied model. A variation under challenge is not effective until the court confirms it.
Variation or not?: Change to the rights themselves = variation; change only to the effect or value of the rights = not a variation; Issuing new equal-ranking shares is usually not a variation.
Court's test: Unfairly prejudicial to the class → court may cancel; otherwise → court confirms; The court looks at the class as a whole, not at one holder's personal interests.

How to solve Variation of Class Rights questions

Use this order for any scenario question on class rights.

1Identify the class and the right being changed. Is it dividend, voting, capital or something else?
2Decide whether the change alters the rights themselves. If it only affects their practical value, such as a new equal-ranking issue, it is usually not a variation. Say so and stop.
3Check the articles or terms of issue for a variation procedure. If one exists, it applies first.
4If there is none, apply the default test: the required proportion of the class by nominal value, or a special resolution at a separate class meeting.
5Calculate the percentage of the class that consented. Only count shares of the affected class, not the whole company.
6Check whether any dissenters can object: did they not consent, and do they hold at least the threshold of the class?
7Check the timing. Was the application made within the time limit? State the court's power to cancel if the variation is unfairly prejudicial.
8Conclude clearly: valid, invalid or open to challenge, with the reason.

Quickest way: Three-question scan for objective questions

When to use it: Section A or Section B objective questions where you have about a minute or two.

Ask: are the rights themselves changing? If not, the answer is usually that no class consent is needed.
Ask: what does the class consent need to be? Work out the percentage using only the affected class's shares.
Ask: can anyone object? Compare the dissenters' holding with the threshold and the time limit, then choose the option that matches.

Common mistakes in Variation of Class Rights

Counting votes of all shareholders instead of the affected class.
Students treat any change as a company-wide vote.
Fix: Use the class's shares only. Ignore other classes unless they are also affected.
Treating every adverse effect on a class as a variation.
The word 'prejudice' suggests that any harm triggers class consent.
Fix: Ask whether the rights themselves changed. Dilution from a new equal-ranking issue is usually not a variation.
Ignoring the articles and going straight to the default rule.
The default percentage is easier to remember.
Fix: Check for a procedure in the articles or terms of issue first. The default applies only if there is none.
Letting any dissenter go to court.
Students remember that a minority is protected but forget the threshold.
Fix: Check that the objectors hold at least the required percentage of the class and did not consent.
Calculating the percentage on votes cast rather than on the whole class.
Abstentions and non-attendance are overlooked.
Fix: Where the test is by nominal value of the class, divide by the whole class, not by those who attended.
Saying the court decides if the variation is fair to the objector personally.
Students confuse it with a personal remedy.
Fix: The court asks whether the variation is unfairly prejudicial to the class as a whole.

Worked examples

Example 1

A company has 1,00,000 preference shares of ₹10 each and no variation procedure in its articles. It proposes to cut the preference dividend rate. Holders of 72,000 preference shares consent. Can the variation go ahead using the default rule of three-quarters in nominal value?

Show the solution

The dividend rate is a right attached to the preference class, so reducing it is a variation of class rights.
The articles give no procedure, so apply the default test: consent from holders of at least 75% of the class by nominal value.
Class nominal value is 1,00,000 × ₹10 = ₹10,00,000.
Consent is 72,000 × ₹10 = ₹7,20,000.
Percentage consenting is 7,20,000 ÷ 10,00,000 = 72%.
72% is below 75%.

Answer: No. The consent is only 72% of the class, below the 75% needed, so the variation is not validly approved by this route.

Example 2

A company has 1,00,000 class B shares. There is no variation procedure in the articles. Holders of 78,000 shares consent to a variation of their voting rights. Holders of 16,000 shares vote against it, and the other 6,000 shares do not vote. The dissenters apply to the court within the 21-day limit. Is the variation valid, and can they apply?

Show the solution

Changing voting rights is a variation of class rights.
Consent is 78,000 ÷ 1,00,000 = 78%, which is at least 75%, so the variation is validly approved.
Check who can object. The dissenters did not consent and hold 16,000 ÷ 1,00,000 = 16% of the class.
16% is at least the 15% threshold, so they have standing.
They applied within 21 days, so the application is in time.
The variation does not take effect until the court rules. The court may cancel it if it is unfairly prejudicial to the class, and otherwise confirms it.

Answer: The variation has the required 78% consent, but the dissenters hold 16% and applied in time, so they may challenge it. The court can cancel it only if it is unfairly prejudicial to the class. Otherwise it confirms the variation.

Exam tips

Always decide first whether there is a variation at all. Many wrong options assume that any harm needs class consent.
Do the arithmetic on the affected class only, and note whether the test is by nominal value or by votes cast.
In an objective question, look for the threshold and the time limit in the options. A single wrong figure usually makes an option wrong.
In a written answer, state the rule, apply it with figures, then conclude. Name the court's role in one sentence.
Use the percentages and periods stated in the question. If none are given, state the common rule and say it is the commonly applied model.

Practice questions from Share capital

Variation of Class Rights in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Variation of Class Rights: frequently asked questions

What are class rights in company law?

Class rights are the rights attached to a particular class of shares, such as dividends, voting or return of capital. They are set by the constitution or the terms of issue. They protect each class from being changed by other shareholders without its agreement.

How do you vary class rights of shares?

First follow any procedure in the articles or terms of issue. If there is none, you usually need consent from holders of a set proportion of the class, often three-quarters in nominal value, or a special resolution at a separate class meeting.

Can a shareholder object to a variation of class rights?

In the commonly examined model, holders of at least 15% of the class who did not consent can apply to the court within 21 days. The court may cancel the variation if it is unfairly prejudicial to the class. Always check the figures in the question.

Is issuing new shares a variation of class rights?

Usually not. If the new shares rank equally with an existing class, the rights of that class stay the same, even though its share of the company is diluted. A variation needs a change to the rights themselves.