Share Classes Definition
Share class is the company’s bifurcation of its shares into different classes on the basis of their voting rights, privileges, ownership restrictions such as dividing the common stock into A shares having the most privileged voting rights and B shares who have less voting rights and so on.
In simple terms, it means dividing the shares into different “classes” of shares to confer different rights to different types of shareholders. These rights could be from voting rights, entitlement to profits, rights to dividends and capital, a different purpose and features depending on the shareholders’ requirements, etc.
Mark Zuckerberg, CEO of Facebook, has approximately 54% voting rights in the company, where he holds 28 % of 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 – which provides 10 votes per share – to its shareholders. It makes us say that Mark Zuckerberg has high voting right within the company.
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Top 7 Alphabetical Class of Shares
Here is the list of Most Common Classes of Shares –
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1 – A Shares
It is a Classification of common shares or preferred class shares. These have lesser benefits in terms of dividends, asset sales, and voting rights when compared to the other class of shares. These 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 might be convertible to another class at a favorable rate.
In the case of Mutual Funds, this class has a front-end load attached for the investors, which are approximately 6% of the amount invested.
2 – B Shares
It is a Classification of common or preferred shares. These have different voting rights than A-shares. In the case of Mutual Funds, this class does not usually charge a front-load, but instead, they charge contingent deferred sales charge (CDSC) or simply the “back end load.”
Also, B shares can be converted to A-share after a certain duration of holding, which is mostly seven to eight years.
3 – C Shares
It is a type of Mutual fund share. It is characterized by the level load, which includes the annual charges of the fund as a fixed percentage to its investors. The charges include expenses around marketing, distributions, and servicing. Charges or load is just about 1% of the fund
The investor pays for these throughout the year. Unlike A or B. In A, the investor pays charges when the fund/ shares are bought. In B, charges are paid when the fund/ shares are sold. Also, class C shares mostly have lower expense ratios than B shares, but higher than the A-shares.
C shares are non-convertible to any other class of shares.
4 – D Shares
It is a type of Mutual fund share which is characterized as a no-load fund. These are usually available through discount brokersDiscount BrokersDiscount Broker is an online stock broker that assists investors in trading securities on the stock exchange by charging a relatively low rate compared to conventional brokerage firms. However, it does not offer any additional services like trading tips or wealth management. read more. Therefore, fees in terms of the commission are attached to transactions done. These fees are directly paid to the broker.
5 – I Shares
These are the Institutional shares that are available for institutional shareholders and investors. Institutional mutual fund share classes have the lowest expense ratios among the other mutual fund share classes.
Fund companies usually use this class of shares as an investment option for the institution. These institutions have a minimum investment of $ 25,000. The class of fund or shares have a low-cost structure and no load.
6 – R Shares
R class of shares is designated for work-based retirement accounts. This class of mutual fund shares is available through the retirement plan, which is mostly employer-sponsored, such as the 401(k).
These shares are not available in the open market and do not carry any sales charges. However, like other, R shares carry the annual expenses towards a mutual fund.
7 – Z Shares
This class of shares is made available to the employees of the fund house that is managing the fund. These shares might be available to the employes in two options. Either by way of purchase or part of their compensation.
Example of Multiple Share Class: Google and its Parent Company Alphabet Inc
The symbol GOOG represents class C while GOOGL ticker represents the A shares. Clearly, C shares do not have any voting rights, whereas A shares, which are the GOOGL shares, have one vote each for the shares. The share classes for the company are divided into 2 classes after the company got split in stocksSplit In StocksStock split, also known as share split, is the process by which companies divide their existing outstanding shares into multiple shares, such as 3 shares for every 1 owned, 2 shares for every 1 held, and so on. The company's market capitalization remains unchanged during a stock split because, while the number of shares grows, the price per share decreases correspondingly.read more having Alphabet Inc named as the parent company.
There are B shares as well as Google, but the employees and early investors own them. Each of them has the right to ten such shares, which, therefore, also makes them have super-voting powers. These shares are, however, not available in the open market.
It came into the picture when Google decided for a stock split due to the formation of Alphabet Inc as a parent companyParent CompanyA holding company is a company that owns the majority voting shares of another company (subsidiary company). This company also generally controls the management of that company, as well as directs the subsidiary's directions and policies.read more. Therefore, shareholders of Google stocks got entitled to one share of the voting stock of GOOGL and one share of the non- voting GOOG stock for each share held.
Advantage
- It helps the promoters of any company to retain its management control and give limited control to the shareholders.
- Providing control to some set of shareholders for the dividendDividendDividend is that portion of profit which is distributed to the shareholders of the company as the reward for their investment in the company and its distribution amount is decided by the board of the company and thereafter approved by the shareholders of the company.read more due to each class of shareholder.
- In case of winding up of the company, limiting or denying certain shareholders the right to return of the company’s total capital;
- One set of shareholders would receive a return of capital and fixed dividend percentage before the other classes of shareholders.
- Raise equity share capital, mostly for startup companies, without diluting the control of the founder members so that the decision making remains easy without others participating in a profit-sharing planProfit-sharing PlanA profit-sharing plan is a defined contribution pension plan in which workers and employees are given the opportunity to get their share in the company's overall profit, incentivizing them to contribute more and more to the company's profit and motivating them to give their best efforts.read more.
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