What are B Shares?
Class B shares mean the class of shares issued by the company, which offers less advantageous rights to the shareholders as compared to Class A shares. The shareholders of Class B shares have lower voting rights than the shareholders of Class A.
B Shares Example
Let us take an example to understand this concept in a better manner.
A company named Alpha Ltd issues two classes of shares to its investors. Class 1 entitles the investor for three votes. Class 2 shares, on the other hand, entitles the investor for five votes. Here, the holder of Class 2 shares gets higher voting right as compared to Class 1 shares. So, Class 1 shares can be called as Class B shares as they entitle the investor for lower voting rights.
It is important to note here that the investor should read out the investment proposal or other documents concerning shares issued, to understand which shares are classes. They should not get influenced by the nomenclature given the company, as it may be misleading. For example, the company may name a class of shares as B shares, but it may be entitled the investor to more voting power.
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For eg:
Source: B Shares (wallstreetmojo.com)
Difference Between Class B Shares vs. Class A Shares
- The significant difference is the voting rights that are available to the holders of B shares are less than that of Class A sharesClass A SharesClass A shares represent the common stocks category, which provides the shareholders with superior rights to voting, conversion, ownership, dividend, and liquidation. These shares cannot be publicly traded in the open market and are generally allotted to the company's top management.read more. However, as explained above also, it is vital to analyze the charter of the company as well as other relevant documents, to investigate which class of share carry higher or lower voting rights, rather than just accepting the classification allotted by the company.
- The charges relating to purchasing Class A shares will be more than that of B shares.
- However, annual expenses that are charged on B shares are more like that in the case of Class A shares;
- The sale of shares of Class B is subjected to charges when they are sold.
- The investors of Class B are given less priority in the dividend distribution as against the shareholders of Class A.
Advantages
Investing in B shares provides the following benefits –
- The initial charges or commission involved in the purchase of these shares are less.
- The fees payable on the sale of such shares may be exempted if held for a certain period, say, five years or more extended period.
- The investors of Class B have an option to convert the shares into Class A if they hold them for a particular period, ordinarily long term.
Disadvantages
The following are a few disadvantages –
- The investors of such shares enjoy lower voting rights.
- The holders of Class B are given lesser priority in the event of dividend distribution as compared to the holders of Class A.
- The annual maintenance fees are high
Conclusion
A company may issue various classes of sharesClasses Of SharesShare class is the company’s bifurcation of its shares into different classes on the basis of their voting rights, privileges, ownership restrictions. For example dividing the common stock into class A shares having the most privileged voting rights and class B shares which have less voting rights.read more. Whenever an investor decides to invest in the shares of a particular company, he should carry out detailed research concerning the class of shares being issued. It may happen in some private companiesPrivate CompaniesA privately held company refers to the separate legal entity registered with SEC having a limited number of outstanding share capital and shareowners. read more that the top-level management of the company, including promoters or other significant stakeholders are provided with the class of shares carrying more voting power than the shares being offered to the general public. Needless to say, the higher voting rights will give the shareholders with greater decision-making power.
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