EDUCBA

EDUCBA

MENUMENU
  • Free Tutorials
  • Free Courses
  • Certification Courses
  • 250+ Courses All in One Bundle
  • Login

Class A Shares

By Madhuri ThakurMadhuri Thakur

Home » Finance » Blog » Corporate Finance Basics » Class A Shares

Class A Shares

Definition of Class A Shares

Class A shares are a classification of common stock or preferred stock that come with greater benefits in terms of voting rights, dividends, asset sales, etc. as compared to the other classes viz. Class B and Class C shares.

A company issues shares to its shareholders when it raises capital in the form of equity. The issued shares have certain classifications based on how much voting rights each share carries, the dividend eligibility, and other features like liquidation preferences. Class A shares are those that enjoy the maximum benefits and are deemed to be better opportunities for shareholders.

Start Your Free Investment Banking Course

Download Corporate Valuation, Investment Banking, Accounting, CFA Calculator & others

Example of Class A Shares

  1. Let us assume a company that has several shares issued to its shareholders. It has categorized these shares based on voting rights per share. Thus, it made 3 categories of shares – Class A, Class B, and Class C. Class C shares have 1 voting right per share, Class B shares have 5 voting rights per share whereas Class A shares have 10 voting rights per share. In a board meeting, the Class A shareholders will be prominent in decision making as their voting value is higher although the decision will be solely based upon the number of shareholders of each category.
  2. Let us take another example of liquidation preference. If the same company in example 1 is taken over by another company, what should be the prospects of the shareholders of each class considering the clause of convertibility of 1:3 per Class A of common stock, 1:2 per Class B of common stock, and no conversion for Class C shares?

In such a case, the senior stakeholders will be given liquidation preference. That is to say that all the debt holders will be paid in full before any common or preferred stockholder is paid. Among the common or preferred stockholders, the holders of Class A shares will be given the first preference of share conversion. This will be followed by Class B and C.

  • Class A shares after conversion = 3x
  • Class B shares after conversion = 2x
  • Class C shares with conversion = 1x

Class A Share Funds

Class A share funds refer to share categorization within the mutual fund domain. Classes in a mutual fund are based on the type and fee charges and hence the categorization is different from common or preferred stock classification in a business.

Mutual funds have several categories of shares. Class A share funds refer to those shares which change an upfront free or front-end load on the initial investment. These shares go on to charge lower marketing fee and can benefit in case of a long-term holding. In contract Class B share funds have lower upfront charges but deferred sales charges. It should be noted that any investment in Class A share funds, or any funds for that matter, should be done after thorough research and understanding including that of the expense ratio and exit load.

Difference between Class A Shares and Class B shares

The major difference between Class A shares and Class B shares is the privilege of voting rights. Class A shares get greater voting rights per share than Class B shares. Thus, decisions of the business are more likely to be impacted by the voting of Class A shareholders rather than Class B shareholders.

Popular Course in this category
Sale
Business Valuation Training (16 Courses)16 Online Courses | 80+ Hours | Verifiable Certificate of Completion | Lifetime Access
4.5 (9,624 ratings)
Course Price

View Course

Related Courses
Equity Research Training (17 Courses)Project Finance Training (8 Courses with Case Studies)

Since Class A shares are privileged, they tend to be greater beneficiaries of profits than Class B shares. In most of the matter other than voting rights, Class B shares have similar characteristic as other classes of shares; for example, the dividends paid by the company.

Class A shares are traded at a higher price than other shares. An example to this is Class A and Class B shares of Berkshire Hathaway that traded at $315,000 and $208, respectively on March 5, 2020.

Advantages of Class A Shares

Some of the advantages are:

  • Class A shares come with enhanced benefits with voting rights being the most important benefit
  • Class A shares have liquidation preference over other categories of shares
  • Subjective to the company’s issuance and needs thereof, Class A shares are also eligible for conversion. One Class A share may be eligible for conversion to 5 shares of common stock
  • Class A shares enjoy benefits related to dividends
  • Class A shares provide a better defense against aggressive take-overs and are part of shark repellent tactics

Disadvantages of Class A Shares

Some of the disadvantages are:

  • Class A shares are sold to the public and are mostly allotted to the management of the company. This is done to serve as incentive and counter agency problems
  • Class A shares have very specific clauses attached to them. The conversion clause is applicable only in specific scenarios and can itself trigger several other clauses
  • Class A shares are very less in number and often do not interest the general public
  • Class A shares are not traded at the same price as other shares of the company. Class A shares can have a huge premium price attached

Conclusion

As Class A shares come with enhanced benefits, the need to issue such shares is to address the issues of agency problems. Class A shares have higher benefits than other categories of shares and thus act as an incentive to the management and the team. Shares classification is intended to restrict diluting the company ownership. Thus, decision-making is restricted to top management and executives. At the very time of its formation of a company, shares are classified to fulfil the above purpose.

For all purposes mentioned here, it should be noted that a Class B share is not a preferred stock. Preferred stock is a different category altogether and shares some characteristics with bonds. Preferred stockholders are paid before common stockholders during events of liquidation or sale, and dividend payout. Common stock shareholders do not have much to dissent with Class A share stockholders so long as the decision-making is aligned in the best interests of the business. This may serve as many disadvantages as advantages.

Recommended Articles

This is a guide to Class A Shares. Here we also discuss the definition and example of class a shares along with advantages and disadvantages. You may also have a look at the following articles to learn more –

  1. Shares Issued
  2. Preferred Shares
  3. Ordinary Shares
  4. Equity Shares vs Preference Shares

All in One Financial Analyst Bundle (250+ Courses, 40+ Projects)

250+ Online Courses

40+ Projects

1000+ Hours

Verifiable Certificates

Lifetime Access

Learn More

0 Shares
Share
Tweet
Share
Primary Sidebar
Finance Blog
  • Corporate Finance Basics
    • BPO vs KPO
    • C Corporation
    • Brick and Mortar
    • Business Entity Concept
    • Bounced Check
    • Capital Maintenance
    • Bridge Financing
    • Business Exit Strategy
    • Callable Bonds
    • Affiliated Companies
    • Certified Check
    • Chattel Mortgage
    • Contingent Beneficiary
    • Debt Collector
    • Closed Corporation
    • Cumulative Voting
    • Consumer Loan
    • Commercial Loans
    • Collateralization
    • Commercial Credit
    • Collection Agency
    • Classification of Financial Markets
    • Class Action Lawsuits
    • Prudence Concept in Accounting
    • Calmar Ratio
    • Asset Classes
    • Audit Evidence
    • Contingent Liability
    • Employee Stock
    • Financial Liabilities
    • Incurred Cost
    • Partial Income Statement
    • Deferred Tax Asset
    • Tax Fraud
    • Non-Operating Income
    • Variable Costing
    • Mixed Cost
    • Prime Cost
    • Regressive Tax Examples
    • Unqualified Opinion of Auditor
    • Bonds Payable
    • Class A Shares
    • Contingent Liability Example
    • Contingent Shares
    • Contributed Capital
    • Brownfield Investment
    • Internal Audit
    • Indirect Taxes
    • Fund Management
    • Fixed Cost
    • Debt Equity Swap
    • Cash Flow Hedge
    • Risk Shifting
    • High Yield Investments
    • General Obligation Bond
    • Forward Market
    • Box Spread
    • Fixed Income Trader
    • Trade Discount
    • Quick Assets
    • Notes Payable
    • Revenue Bonds
    • Euribor
    • Settlement Date
    • Short Covering
    • Short Selling
    • Dividend Examples
    • Time to Market
    • Junior Accountant
    • Commodity Derivatives
    • Flash Report
    • Idle Time
    • Leasehold Improvement
    • Product Portfolio
    • Risk Parity
    • Branch Accounting
    • Credit Enhancement
    • Basis Trading
    • At the Money
    • Accounts Receivable
    • Long Term Investments
    • Negative Goodwill
    • Recourse Factoring
    • Residual Value
    • Short Term Loan
    • Tax Exempt
    • Audit Report Format
    • Cash Investment
    • 457 Plan
    • Audit Procedure
    • Audit Materiality
    • Audit Committee
    • Asset Allocation
    • Non-Cash Expenses
    • Dividend Policy Types
    • Credit Terms
    • Dividend Payable
    • Profit Center
    • Absorption Costing
    • Final Dividend
    • Hybrid Securities
    • Other Current Assets
    • Simple Random Sample
    • Dependency Ratio
    • Effective Duration
    • Loan to Value Ratio
    • Inventory Turnover Ratio
    • Advantages of Ratio Analysis
    • Loss Ratio
    • Delaware Corporation
    • Articles of Incorporation
    • Negative Covenants
    • Statutory Liquidity Ratio
    • Leverage Ratio for Banks
    • Accrued Liabilities
    • Activity Ratio
    • Debt Service Coverage Ratio
    • Return on Investment Ratio
    • Turnover Ratios
    • Cash Conversion Cycle
    • Lumion vs V-Ray
    • Capital Intensive
    • Voided Check
    • Negotiable Instruments
    • Portfolio Optimization
    • 401k Plan
    • Non-Marketable Securities
    • Stock Certificate
    • Treasury Stock
    • Appropriate Retained Earnings
    • Stockholder
    • Share Vesting
    • Shares Issued
    • Preferred Shares
    • Share Buyback
    • Shareholder Types
    • Tax Loss Harvesting
    • Statutory Audit
    • Audit Risk
    • Fund of Funds
    • Accredited Investor
    • Cost Centre
    • Lessee
    • Golden Handcuffs
    • Ordinary Shares
    • Restricted Stock Units
    • Goodwill Valuation
    • Share Classes
    • Lessor
    • Preferred Dividends
    • LIFO Liquidation
    • Dilutive Securities
    • Restructuring Cost
    • Non-Cumulative Preference Shares
    • Pass Through Entity
    • Management Discussion and Analysis
    • Premium on Stock
    • Leveraged Loans
    • Dividend
    • Dividend Policy
    • Financial Reporting Objectives
    • Financial Reporting
    • Internal Controls
    • Capital Investment
    • Debt to Equity Ratio
    • Dividend Growth Rate
    • Market Capitalization
    • Deal Origination
    • Importance of Working Capital
    • SWOT Analysis
    • White Knight
    • Root Cause Analysis
    • Realized Gain
    • Return on Operating Assets
    • Offshore Investments
    • Transfer Price
    • Times Interest Earned Ratio
    • Debt Coverage Ratio
    • Dividend Discount Model
    • Combined Ratio
    • Merger Arbitrage
    • Gordon Growth Model
    • Advantages of Joint Venture
    • Interest Coverage Ratio
    • Reserve Requirements
    • Asset Turnover Ratio
    • Price to Rent Ratio
    • Ratio Analysis Types
    • Debt Ratio
    • Business Risk
    • Financial Leverage
    • Dividend Payout Ratio
    • Mistakes in DCF
    • Risk/Reward Ratio
    • Full Form of FIPB
    • Financial Risk
    • CAPE Ratio
    • Overcapitalization
    • Systematic Risk
    • Hedge Ratio
    • Full Form of NHB
    • Sensitivity Analysis
    • Current Ratio
    • Corporation Examples
    • Asset to Sales Ratio
    • Balance Sheet Ratios
    • List of Financial Ratios
    • Coverage Ratio
    • Forward PE Ratio
    • Interpretation of Debt to Equity Ratio
    • Capitalization Ratio
    • Importance of Ratio Analysis
    • Quick Ratio Interpretation
    • Corporate Finance Basics
    • PEG Ratio
    • Corporate Finance Interview Questions
    • Price to Earnings Ratio
    • Structured Note
    • Limitations of Ratio Analysis
    • NPV vs IRR
    • IRR vs ROI
    • Imputed Interest
    • Full Form of HR
    • Shareholders Agreement
    • Earnings Per Share
    • Corporate Finance Jobs
    • About Corporate Finance
    • Corporate Finance Theory & Practices
    • Career in Corporate Finance
    • Simple Interest Rate vs Compound Interest Rate
    • Stocks vs Shares
    • Bonds vs Debenture
    • Bull Market vs Bear Market
    • Mortgagee vs Mortgagor
    • Horizontal Integration vs Vertical Integration
    • Money Market vs Capital Market
    • Leveraged vs Unleveraged
    • Dividends vs Capital Gains
    • Present Value vs Net Present Value
    • Qualified vs Ordinary Dividends
    • ROE vs ROA
    • Bond vs Loan
    • Stock Dividend vs Stock Split
    • Audit vs Assurance
    • Coupon Rate vs Interest Rate
    • Growth Stock vs Value Stock
  • Accounting fundamentals (658+)
  • Asset Management Tutorial (198+)
  • Banking (44+)
  • Credit Research Fundamentals (6+)
  • Economics (44+)
  • Finance Formula (382+)
  • Financial Modeling in Excel (13+)
  • Investment Banking Basics (120+)
  • Investment Banking Careers (26+)
  • Trading for dummies (67+)
  • valuation basics (27+)
Finance Blog Courses
  • Online Business Valuation Training
  • Equity Research Certification
  • Project Finance Course
Footer
About Us
  • Blog
  • Who is EDUCBA?
  • Sign Up
  • Live Classes
  • Corporate Training
  • Certificate from Top Institutions
  • Contact Us
  • Verifiable Certificate
  • Reviews
  • Terms and Conditions
  • Privacy Policy
  •  
Apps
  • iPhone & iPad
  • Android
Resources
  • Free Courses
  • Investment Banking Jobs Offer
  • Finance Formula
  • All Tutorials
Certification Courses
  • All Courses
  • Financial Analyst All in One Bundle
  • Investment Banking Training
  • Financial Modeling Course
  • Equity Research Course
  • Private Equity Training Course
  • Business Valuation Course
  • Mergers and Acquisitions Course

© 2022 - EDUCBA. ALL RIGHTS RESERVED. THE CERTIFICATION NAMES ARE THE TRADEMARKS OF THEIR RESPECTIVE OWNERS.

EDUCBA
Free Investment Banking Course

Corporate Valuation, Investment Banking, Accounting, CFA Calculator & others

*Please provide your correct email id. Login details for this Free course will be emailed to you

By signing up, you agree to our Terms of Use and Privacy Policy.

EDUCBA
Free Investment Banking Course

Corporate Valuation, Investment Banking, Accounting, CFA Calculator & others

*Please provide your correct email id. Login details for this Free course will be emailed to you

By signing up, you agree to our Terms of Use and Privacy Policy.

EDUCBA Login

Forgot Password?

By signing up, you agree to our Terms of Use and Privacy Policy.

Let’s Get Started

By signing up, you agree to our Terms of Use and Privacy Policy.

EDUCBA

*Please provide your correct email id. Login details for this Free course will be emailed to you

By signing up, you agree to our Terms of Use and Privacy Policy.

This website or its third-party tools use cookies, which are necessary to its functioning and required to achieve the purposes illustrated in the cookie policy. By closing this banner, scrolling this page, clicking a link or continuing to browse otherwise, you agree to our Privacy Policy

Loading . . .
Quiz
Question:

Answer:

Quiz Result
Total QuestionsCorrect AnswersWrong AnswersPercentage

Explore 1000+ varieties of Mock tests View more

Special Offer - Online Business Valuation Training Learn More