Class A Shares

What are Class A Shares?

Class A shares are the type of shares of the company which is considered to be most privileged in terms of its voting rights, conversion rights, ownership rights, dividend rights, and liquidation priorities and these shares are generally allotted to the top-level management to provide the proper control of the company.

Class A shares are a particular category of shares that usually comes with unique benefits in the form of additional voting rights as compared to ordinary shareholders. They come under the classification of common stock or preferred stock.

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Source: Class A Shares (wallstreetmojo.com)

Class A Shares Examples

Let us say, a listed Company ABC on the stock exchange has two classes of shares issued – Class A shares and Class B sharesClass B SharesB Shares are a mutual fund share type which work with the “back-end load” structure, i.e., shareholders can pay the commission at the end of the investment period. Moreover, they might contain more or less voting rights as compared to the Class A shares. read more. On the one hand, a shareholder who owns one A share of Company ABC may have ten voting rights per share. On the other hand, a shareholder who owns one Class B share of Company ABC will have only one voting right per share. It means that investors in Class A shares have more votes for each share they hold than investors in Class B shares.

Numerical Example

Let us assume that Company ABC is a publicly listed company. Another public company decides to buy Company ABC. It means all the debtors who lent money and shareholders who invested in the shares of Company ABC will have to be paid. The first in line would be the debtors who lent money to Company ABC. The second line will be the investors who invested in A-shares of Company ABC. Let us say that one class A share of Company ABC is convertible to 4 shares of common stock. At the time of buying Company ABC, its shares are being sold at $5 per share. If the founder of Company ABC owns 100 A shares, these will convert to 400 shares of common stock to be valued at $2000.

This unique benefit of having more votes per share and more value than other class of shares comes in handy when there is a situation of a hostile takeover. Or, like in the above case, during the sale of a company, if the majority of votes per share lie with the company management, then it holds the maximum decision-making power.

Advantages

Disadvantages

  • These shares are only reserved and offered to the management of the company; they are scarce in nature.
  • These shares are not available to the public. It means an average investor cannot invest in them. The company only offers these shares to individuals in the senior management, C-level executives, founders, board of directors, and owners.
  • These cannot be traded in the open market. It means that shareholders of such shares cannot sell it to another investor in the secondary stock market.

Conclusion

Class A Shares are a superior category of shares. This concept of shares was introduced in the first place so that only the management of the company can control significant business decisions. With more number of votes per share, the primary voting rights lie with the top management of the company. This concentration of decision making power in the hands of top executives, allows the management of the company to focus on long-term growth and build a better business in the future.

This article has been a guide to what are Class A Shares and how they are entitled to unique benefits. Here we will discuss Class A Shares examples along with advantages and disadvantages. You can learn more about accounting from the following articles –