Difference Between Class A and Class B Shares

Shares sold in the share market on behalf of companies are usually classified into different classes. This differentiation helps in outlining the effective rights of each shareholder of the company.

The shares are offered on the basis of the financial stability of a company and also to have public input in company dealings. 

Class A vs Class B Shares

The main difference between class A and class B shares is that the voting power given to shareholders of each class is different. In most companies, the greater voting power lies in the hands of class A shareholders, and along with the greater voting rights, they also gain more access to most of the company’s decisions and can voice their opinions without fearing subjugation. But class B shareholders hold barely any advantage in the company’s running as they have just a single vote per shareholder per share.

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Class A shares are the most commonly purchased shares in the share market as they are the initial public fundings that the company can accept without diluting the company ownership and their control and power over their company. Almost all companies that put themselves in the share market give out class A shares even if they don’t provide other classes of shares. 

Class B shares are not always present in a company as soon as they are part of the share market. This class of shares comes up only after the complete sale of class A shares. Even after that class B shares are considered of the company still requires a financial backup in the form of public money from people who are willing to buy the share in return for periodic profit. 

Comparison Table Between Class A and Class B Shares 

Parameters of ComparisonClass A SharesClass B Shares
Resale ValueUsually highLow in general
Vote NumberGreaterLower
Present From the Start in the Companies in the Share MarketYesNot necessarily
Another NameCommon sharesPreferred shares
Priority on DividendHighLow

What is Class A Shares? 

Class A shares are also called common shares as they are the first and foremost available shares within a company. 

When compared to most other classes of shares that the company might hold, class A has the greatest number of voting rights among the company shareholders. 

The number of votes per shareholder for each share that they hold can range from 10 to 100 or even greater. 

The number of votes depends on the company too. If the company is well known and has a great profit inflow and is quite a major company, then the votes can go even higher. 

Even after purchasing a class A stock, the shareholder needs to give a mutual fund that is paid over a period of time. 

This doesn’t bring any changes in the profit that is given to the class A shareholders. 

Such payments can only create an eventual increase in the profit that the shareholder receives periodically. 

The shareholders have greater access to vote on board meetings and prove to be quite useful during board member elections. 

They can voice their feelings on the company’s running and point out the flaws in business matters. 

In case a shareholder wishes to withdraw his/her share from the company, they can do so without much hassle. 

There are no resale issues and since it is a class A share, the value would only increase to double the amount of what the shareholder bought it at. 

What is Class B Shares? 

Class B shares are more commonly known as preferred stock or preferred shares. 

This name comes from a lot more advantage of class B shares even if the purchase amount might be lower. 

Class B share comes with a very small voting power given to its shareholders. 

Sometimes the votes might be as low as one voter per shareholder for each of the shares they hold. 

This number would not go over the voting power of a class A shareholder. 

Due to a low number of voting, a class B shareholder holds very little power in the decision-making of the company. 

Their opinions might even go unnoticed if the votes gained on a particular matter are considerably low. 

Class B shares are rarely present in a company from the start. 

This is because only after class A shares are completely sold, would the company think about diluting their power. 

If the company in the share market is looking forward to selling more of the company’s rights to the public under class B shares, then the company is in need. 

That need might be financial or even in the decision-making process. 

The more the shareholders the greater could be the company’s decision-making input from the holders. 

It’s not always that a class B shareholder holds bare minimum voting rights. 

Sometimes they may hold votes equal to or greater than that of Class A shareholders. 

Class B shareholders need to pay a mutual fund over a period of time to keep their shares intact. 

But this shows that they have a lower profit return when compared to other class shareholders with a mutual fund payment. 

During a resale of the share, class B shareholders are charged a certain amount to be paid to the company. 

Main Differences Between Class A and Class B Shares

  1. While class A shares have got a greater voting right given to their shareholders, class B shareholders hold a very small number of voting rights. 
  2. Class B shares are also called preferred shares or preferred stock while class A shares are called common shares. 
  3. Class A shareholders gain greater access and an active role in the company’s running but class B shareholders have a limited say in the decision-making process of the company. 
  4. Class B shareholders need not pay a mutual fund over a period of time but class A shareholders have to pay a certain amount constantly. 
  5. While class A shareholders can sell their shares without having to pay a fee to the company, class B shareholders have to pay an amount to the company if they wish to sell their share. 

Conclusion

Any amount of shares sold by companies depends on them alone. 

Their financial support system is the shares from the public. 

The two classes of shares that are class A and class B shares are the most common ones sold by companies to enhance the money flow

An individual can purchase any number of shares that they want depending on their financial capacity. 

The difference in the voting power of different share classes is the only reason people tend to buy a major class A share to have their decisions be heard. 

Class A shareholder holds great power in the running of the company and has an active role in the company’s functioning. 

References

  1. https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1467-646X.2004.00101.x
  2. https://www.cambridge.org/core/journals/journal-of-financial-and-quantitative-analysis/article/relative-prices-of-dual-class-shares/BF3549A8D318AE4D07AEF4844C6E58ED
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