Should the Articles of Incorporation designate multiple classes of shares?

In some cases, a corporation’s capital structure will consist of multiple classes of shares (e.g., common, preferred) and series within those classes (e.g., Series A Preferred). Different classes generally contain different rights (e.g., with respect to voting, dividends, conversion, liquidation rights, etc.). Great care must be taken when establishing more than one class of shares, as doing so can have tax consequences. For example, a S-Corporation can only have one class of shares. In many cases, an investor’s rights agreement or shareholder’s agreement can be drafted to accomplish similar goals (e.g., with respect to voting and control) without the tax issues. The Articles can provide for detailed rights of each class of shares or the Board of Directors can later do so and then file a Certificate of Determination.