B/C Share Scheme

Companies occasionally hand cash back to shareholders by issuing new types of shares, typically called B shares and C shares, and hence deemed a B/C share scheme. Each shareholder has the choice of which type of share they wish to receive.

After the share issuance, the company will redeem the B shares, effectively canceling them, and return the notional amount to shareholders as capital.

The C shareholders receive an equivalent sum as the B shareholders as a dividend, which is taxed as income. The C shares are then rendered worthless following the payout and cancelled.

Fundamentally, B/C share schemes are a way for shareholders to choose between receiving their payment as either capital or income, which are subject to different tax rates. For some individuals, taking the capital gains payout could reduce their overall tax liability. Therefore, for companies with a significant retail shareholder base, forming B shares may be the best way to return excess capital to stockholders.