Class A Shares vs. Class B Shares: An Overview
Common shares represent equity in a publicly-traded company, the ownership of which is usually divided up into classes. The most common are Class A and Class B shares. The characteristic that distinguishes the two is typically what is particular to that company. One class might simply have more voting rights, while another might be tradeable on the public markets and the other not, or might be available only to the founders and executives, or for any other reason.
Key Takeaways
Companies offering more than one type of share class commonly provide Class A and Class B stock.
The difference between the shares comes down to how a company structures the shares.
Some companies will restrict one class to those in the c-suite.
One class may have more voting rights than the other or be traded on a public exchange; the other might not.
Class A Shares
Class A shares are one type of a class of common stock in a public company. This type of stocks are an ownership interest in a company, and entitle people buying the stock to some portion of the company’s profits.
If they hold shares of the ‘common’ variety – they can also be called ‘ordinary’ – the owners are entitled to at least one vote per share, which they can exercise at annual meetings to elect board members, approve other corporate decisions, and air their grievances.
As a result, Class A shares have enhanced voting rights so that most companies issue only Class A shares to those people whom they want in positions of voting power, in management. Class B shares can also provide the company with voting power in the event of a hostile takeover.
Class A shares can also be convertible further than one for one. If a CEO owns 10,000 class-A shares that are convertible into a further 25,000 common shares, and the company sells, the CEO essentially made a profit on the combined price of all 35,000 shares.
The class A shares are divided into three types modern share holdings, traditional share classes and technology share classes.class a have 3 different type like a), b) and c).
If a company is forced into bankruptcy and liquidated, owners of common stock rank last in the lawsuit that distributes what’s left.
Class B Shares
A firm that issues more than one class of common stock will often refer to its classes as Class A and Class B, even though all classes are the equivalent of common stock; they’re just structured differently.
Different classes might be offered by a single company so that one of them is given to executives, or the classes might trade at different prices, or a separate class might’ve been issued to a single division prior to some kind of merger or acquisition.
Moreover, one class might trade publicly and one class might not. Non-traded shares are usually given to company founders or executives and subject to restrictions on their ability to sell.
Recall as well that Class B shares are also issued for reasons that aren’t just for the benefit of the company and its executives: for instance, a company with Class A shares that trade for hundreds of thousands of dollars.
The firm might then offer to sell Class B shares at quite a low price, because Class A shares will be far too expensive for many investors. They can now get into the company at a price they can afford.
Note
A corporation can issue any number of different classes of common stock, and that decision is typically made because the founders of the company want to concentrate voting power among a certain group of individuals.
Special Considerations
Setting aside the question of voting rights and other differences, there are typically only two classes of common stock: Class A and Class B. And, usually, these classes represent the same equity interest in the company. As a result, all classes of shareholders have the same claim to share fairly in the profits of the company – in other words, they have the right to ‘participate in any dividends declared by the board of directors’.
Unless they feel the company is getting onto the wrong track and don’t feel that the others with the votes can change direction – at that point it might matter.
Common stock classes are not the same as a firm’s preferred shares (even though they might have ‘preferred’, ‘senior’, or ‘double-shared friendly shelter’ in their names). Preferred shares are another sort of beast, a hybrid between a stock and bond.
Holders of privileged stock have the right to a dividend, and any dividend that the company declares must be paid out to them before any cuts will go to common stockholders. Meanwhile, if the company shuts down, preferred stockholders are paid back before common stockholders get a look in.
Preferred stocks are also much less volatile than common stocks, which is why they appeal to conservative investors and retirees looking for income supplements. To be sure, a company can default on its preferred dividend payouts. Yet a new common-stock issue normally requires a prospectus and registration with the Securities and Exchange Commission, which renders default less likely.
Class A Shares vs. Class B Shares Example
As US tech legend Hewlett-Packard worked out when it split up into smaller companies earlier this century, the most obvious difference between Class A and Class B stock can be in the way that shares are issued by a single parent company; Berkshire Hathaway, the conglomerate run by investor Warren Buffett, had issued both classes of stock until it stopped issuing the Class B stock (at significantly cheaper prices) in 2010. At time of writing (July 2024), the Class B (BRK.B) stock traded at around $435 but its Class A (BRK.A) stock came in at more than $645,000 for each share.
While its price was soaring into the stratosphere, Buffett had rejected a stock split for decades, giving a disproportionate amount of voting power to a relative handful of shareholders. It eventually got too big for even Buffett’s taste, and in 1996 he created a Class B in order to pull small investors into the fold.
There actually is no difference except that a share of Class B stock sells for 1/1500th of the price of a Class A share and has a similar fraction of voting power.
Do Class B Shares Have Voting Rights?
Right, Class B shares have voting rights. Obviously, managers determine the degree of voting power they give to outsiders.
Do Class B Shares Count Towards a Company’s Market Cap?
What Are Class B Shares in a Mutual Fund?
A share class that pays a sales commission in a mutual fund after you purchase it is called a B-share. This is the equivalent of a front-end load, which you pay when you buy a fund, but it’s paid after you purchase shares of a B-share fund, when you redeem.
What Class of Shares Are Considered Best?
Share class A might be a better option for some investors, and share class B for others. That depends on the individual and how they choose to set investment goals, as well as how a particular company has chosen to structure its shares. Some shares have more voting rights than others, while other shares trade at a lower price per share. What matters most to the investor will tell them which share class is better.
The Bottom Line
The voting power of Class A and Class B shares is qualitatively different – differently available to some extent, and differently convertible, too. Fundamentally, neither of these alternatives provides inherently better voting power than the other; it’s all a matter of how a corporation organises each share class and which share-class characteristics are most important to an investor.