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Class B shares are, like class A shares, a classification of common stocks which may be accompanied by more or less voting rights than class A shares. Class A shares are thought to carry out more voting rights than class B; however this isn’t always the case. Companies tend to hide the disadvantages that are associated with owning shares with less voting rights by calling these shares class A shares and those with more voting rights are called class B shares. A detailed account of the company’s different classes of stock is incorporated in the company’s bylaws and charter.
Class B shares also have lower dividend priority than class A shares. Despite this, different share classes tend not to affect a typical investor’s share of the profits or welfares from the company’s total success. Investors should also research the details of another company’s share classes when considering investing in a particular firm, which includes more than one class. For instance, if a private company was considering going public, this would then typically raise issues with a large number of common shares. However, this may provide its founders, executives or any other large stakeholders with a slightly alternative class of common stock, carrying several different votes for each share. Increasing the voting shares gives the key company insiders more control over the voting rights, the company’s board of directors (BOD) and over corporate actions. Despite key insiders not owning even more than half of the remaining shares, they are still able to maintain the majority of the voting rights; because of this the insiders can defend the company against any hostile takeovers.
Companies that choose to have multiple classes of common stock tend to issue two classes which are usually meant as class A and class B shares. The normal thing people tend to do is assign more voting rights to one of the classes of stock. For instance, if a private company were to decide to go public they usually issue a large number of common shares. Other companies may sometimes provide its founders, executives, or other large stakeholders with a different class of common stock which also carries various votes for each individual share of stock. It is advised that all investors should always research the details of the company’s share classes if they were to consider investing in a firm which involved more than one class. This is down to the fact that sometimes the ‘supervoting’ multiple is only around 10 votes per higher class share; however some companies can choose to make them higher. It is normally class A shares which are superior to class B shares, although class B shares sometimes have more votes than class A shares.
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