Class A vs Class B Shares: What the Difference Means

A share class is a category of stock with its own set of rights and costs. A company with one share class gives every shareholder the same rights per share. A company with several share classes writes different rights into each one, and the details sit in its certificate of incorporation (the charter) and related governing documents.

Companies issue multiple classes to give different groups different things. Founders may want to keep control. Outside investors may want a claim on the economics. Separate classes let a company give each group what it wants without giving up the rest. The resulting mix of classes is part of the company’s capital structure.

Separating economic ownership from voting control

Economic ownership is the claim on profits and on the proceeds if the company is sold or liquidated. Voting control is the power to elect directors and approve major corporate decisions. With a single class of stock the two move together: own a tenth of the shares and you hold a tenth of the economics and a tenth of the vote. Multiple classes pull them apart. A holder can own a small share of the economics and a large share of the votes.

The key difference is usually voting power. The letters carry no standard meaning. At one company Class A is the ordinary share and Class B carries extra votes. At another it is the other way around. The charter says which is which.

Voting rights

Vote count per share can differ between classes depending on the company. One class might carry one vote per share and the other ten. A class can also carry no vote at all. Stock with the larger vote count is often called super-voting stock, and a holder of a small slice of the total shares can end up deciding the outcome of shareholder votes.

Economic rights

Dividend and liquidation rights can be identical or vary by class. Some structures give every class the same dividend per share and the same payout in a sale. Others rank one class ahead of the other or pay them different amounts. How the classes split the economics is a separate question from how they vote, and the answers can point in different directions.

Founder and insider control

Every time a company sells stock to raise money, existing owners hold a smaller percentage of the company. Equity dilution takes votes along with it when there is only one class. A dual-class structure lets founders sell a large share of the economics and keep the votes. They can raise capital and still decide who sits on the board and which deals get done.

The structure matters most at an IPO. In a typical setup, insiders hold the higher-vote class going in and the public is offered the other.

Common among founder-led companies

Dual-class structures are common among founder-led companies, where the founders want to run the business on a long timeline without a shareholder vote threatening the plan. The tradeoff is built into the design. Founders get room to plan, and every other shareholder gets less say.

What Class A vs. Class B ownership means for shareholders

Owning the lower-vote class usually means a share of the company’s economics with little say in how it is run. That holder still receives dividends if the company pays them and shares in the proceeds of a sale, but has limited influence over board elections and shareholder votes. Owning the higher-vote class can give influence out of proportion to the economic stake. Agreements such as drag-along and tag-along rights also shape what each holder can do when a company is sold.

Liquidity and trading differences between classes

After an IPO, the class offered to the public is the one that trades on the exchange. The founder class often does not register to trade, or trades only after it converts to registered shares. Two classes of the same company can trade at different prices, since a share with more votes is worth something different to a buyer than a share with fewer.

Before an IPO, neither class trades on a national exchange. Shares can change hands privately, and transfer restrictions such as a right of first refusal and regulatory requirements can limit who can buy and when.

Dual-class structures in the pre-IPO and secondary market

A company’s share classes are set in its charter, and a secondary sale transfers shares of a specific class. The company’s share structure at IPO can differ from the share structure today, because a company can amend its charter or recapitalize before it lists. What happens to private shares after an IPO depends on the lock-up provisions in the company’s registration statement and on the specific terms of the vehicle used to invest. Anyone looking at private companies should treat the current share structure as a snapshot that may be subject to change.

What share class secondary buyers are typically acquiring

Secondary buyers typically acquire shares from existing holders such as current and former employees and early investors. Those shares are often common stock, and a company with several classes may have issued different classes to different groups of holders. A buyer generally takes the class the seller holds.

How the buyer will hold the shares matters too. In an SPV, the investor owns an interest in the vehicle and the vehicle owns the shares, which is one of the differences covered in SPV vs direct investment.

Why confirming the share class matters before a purchase

Two classes of the same company can differ in votes, economic rights, in transfer restrictions and in what they convert into. The class determines the rights, privileges, and costs of a share. A buyer who treats all of a company’s shares as interchangeable can end up with less voting power or fewer conversion rights than expected. A price quoted for one class may not apply to another share class.

Reviewing the company’s charter and share structure

The charter lists each authorized class, the number of shares in each and the rights attached. Start there. Then look at the cap table to see how many shares of each class are outstanding and who holds them. Compare the votes insiders hold with the economic stake they hold. Check whether the company can authorize more shares or new classes, since either can dilute existing holders. The share purchase agreement should name the class being transferred.

Confirming voting and conversion rights

Confirm how many votes each class carries and on which matters. Then find out whether the shares convert. Conversion terms say whether one class can turn into another, at whose option and on what trigger. A transfer of shares and an IPO are common triggers for share class conversion. Some charters also include sunset provisions that end super-voting rights after a set date or event. These terms can impact what a share becomes in a new owner’s hands.

When making an investment through Augment, Augment provides documentation on the share class underlying the Augment Collective SPV an investor would own units in. Investors using Augment’s platform are encouraged to confirm the structure details themselves before purchasing, including voting and conversion rights and any transfer restrictions, and to review them with their own legal and tax advisors.

Share classes typically separate voting power from economic ownership, and the letters A and B say nothing about which class has more of either. Dual-class structures are common among founder-led companies, which use them to keep control while they raise money. Confirming share class details matters before any private or public purchase.