What is Class B Common Stock?

1769 reads · Last updated: December 5, 2024

Class B common stock refers to stocks that have common stock equity, but relatively lower voting rights and dividend rights. Class B common stock is usually held by ordinary investors, with lower rights and privileges. However, in some companies Class B shares might have superior voting rights, depending on the company's charter and governance structure.

Definition

Class B common stock refers to shares that have the rights of common stock but typically have lower voting and dividend rights. These shares are usually held by general investors and have relatively lower rights and priorities. However, in some companies, Class B common stock may have higher voting rights, depending on the company's charter and governance structure.

Origin

The concept of Class B common stock originated from companies' desire to balance control and capital raising needs through different classes of stock. The earliest multi-class stock structures date back to the early 20th century when some companies began issuing different classes of stock to meet the needs of various investors.

Categories and Features

Class B common stock is typically contrasted with Class A common stock, which usually has higher voting and dividend rights. Features of Class B common stock include lower voting and dividend rights, but in some cases, it may have higher voting rights to maintain control by founders or management. Its application scenarios include companies wishing to raise funds without diluting founders' control.

Case Studies

Google (now Alphabet) adopted a multi-class stock structure during its 2004 IPO, issuing Class A and Class B common stock. Class A shares had one vote per share, while Class B shares had ten votes per share, ensuring founders and management retained control of the company. Another example is Facebook, where Class B shares also have higher voting rights to ensure founder Mark Zuckerberg's control over the company.

Common Issues

Investors often misunderstand the voting and dividend rights of Class B common stock, assuming they are always lower than Class A shares. In reality, specific rights depend on the company's charter. Investors should carefully read the stock prospectus provided by the company before purchasing to understand the specific rights and restrictions.

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