1 Answers: What are Share Classes? And is this important for Investing in Stock?

Question

I have heard that not all stock is created equal and some stock is better than others. Recently I learned about preferred and common stock yet there seems to be different classes of stock too? Please advise about the different classes of shares.

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Brian Chapman 8 months 1 Answer 74 views 0

Answer ( 1 )

  1. Yes that is correct. In addition to the choice of Common or Preferred Stock, some companies may offer a choice of publicly-traded Share Classes.

    These classes are designated by letters of the alphabet, usually A and B.

    A company may offer a Class of Stock which is reserved for one of its divisions, like another company it might have acquired.

    In another case, a company might issue different Stock Classes and have them trade the different prices and have different Dividend policies. When a company has dual Share Classes, it’s more common for one share class to be trading publicly while the other one is non-trading.

    Non-traded shares are usually kept for the company founders and management.

    Those shares are kept under tight restrictions from being sold and they tend to have what is called Super-Voting Power. This way it makes it possible for insiders to own less than half of the total company shares, yet control the outcome of issues that are Preferred shareholder vote.

    For example, a decision to sell the company.

    In order to recap everything, Common Stocks have to do more with Capital Gains and because of that, tend to have much more risk than their Preferred counterpart.

    Preferred Stock is more in relation with Dividends and is consequently a much safer investment with limited upside. Stock Classes are just classification of stocks and are used differently according to the company.

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