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Shares can be broken down into classes where Class A is the one with higher voting rights than Class B. Some of the stocks are restricted and held by the employees or the management and other service providers, and these can form the priority category. Firms define the voting rights for each where different companies may have different policies related to the voting, the preference for dividend distribution and priority is given, in the condition of, liquidation. Mostly Class A is preferred by the shareholders in comparison to B and C as there are many benefits associated with it – dividend/liquidation priority. It is considered best for long term investor who would like to hold it for more than 5 years where the initial expense can be lower than B or C types.
However, there are some firms where the dual structure is adopted. In 2018, the Facebook share price was down from $217, following the Cambridge Analytica disaster, to $164 (7.5%), where the shareholders backed the proposal to scrap Facebook’s dual-class share policy where Class A has one vote per share and Class B has ten votes per share. B is controlled by the Management and the Director, and Mark Zuckerberg owns more than 75 percent of it, which means, if they disagree with the shareholders, they can use their voting rights to impose their decisions.
Similarly, the firm Chewy (CHWY) at the NYSE has common stock entitled for 1 vote and B entitled for 10 votes, making the B types dominant. Experts criticize such dual status without sunset arrangement that can allow for the retirement of arrangements and the release of withheld stocks in the market. Such strategies by the management can lead to ignoring the call by the common stockholders to break up or rearrange the board. In some companies, the disparity in the rights is even more pronounced that leads to a decline in the value of low voting stocks held by the public investors.
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