Class A vs Class B shares

This article is not relevant for Indian Stock market Investors.

In the US market, we often hear about Class A, Class B shares. Even wondered what they are? Let me give you an example.

Berkshire Hathaway Inc. has two classes of common stock designated Class A and Class B. A share of Class B common stock has the rights of 1/30th of a share of Class A common stock except that a Class B share has 1/200th of the voting rights of a Class A share (rather than 1/30th of the vote). Each share of a Class A common stock is convertible at any time, at the holder’s option, into 30 shares of Class B common stock. This conversion privilege does not extend in the opposite direction. That is, holders of Class B shares are not able to convert them into Class A shares.

Similarly at GOOGLE:

There is two classes of Google stock — one (Class B shares) with “super-voting” rights of 10 times those of the other (Class A) shares. This two-part equity capital structure ensures that power remains firmly in the founders’ hands. In addition, Class B shares will be convertible, whereas Class A shares will not.

What it means?
The founders use this tool to separate ownership and control of the company (i.e. they take the investor’s money without actually selling the company or giving any seat on the board.

eg: Ivar Kreuger (one of the biggest matchstick men) controlled his 600 Million Dollar empire (in 1920s) by owning just 1% of the company stocks.

4 replies on “Class A vs Class B shares”

I’ve never heard of the distinction between class A and B. I wonder what classification Mentor Capital (MNTR) falls under. I was turned onto them after reading an article on Breast Cancer Investing. They have a lot working for them with their 20% interest in a bio-tech company doing great things with a new breast cancer treatment.

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