Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Share Classes

What it is:

Share classes refers to the division of a company's equity into different classes, which have different rights.

How it works (Example):

Companies generally set forth the distinguishing features of their share classes in their corporate charter and bylaws.
 
Class A shares for example, are generally the first in a series of stock classes maintained by a company. They generally have liquidation preference over all other share classes, meaning that if the issuer were to liquidate, the class A shareholders would receive cash before other share classes.

Share classes may also have different voting and dividend preferences, meaning that cass A shareholders may receive more votes or a higher dividend per share than cass B or C shareholders.

Why it Matters:

Companies classify stock for many reasons. Some classes of stock might represent ownership of a specific subsidiary, and others might have specific investment purposes, sell at different prices, or pay different dividends. Each class may also have ownership restrictions.
 
Sometimes companies preserve the power of certain minority owners or management by assigning special voting rights to specific stock classes. It is important to note that these shareholders may or may not have provided as much capital as the other share classes.

Related Terms View All
  • Level I Quote
    Level I quotes do not disclose which market makers are bidding for or offering the...
  • Hazard Insurance
    Let's say John Doe borrows $100,000 to buy a house. Company XYZ lends him the money and...
  • Education Credit
    Currently, there are three major education credits in the United States (amounts subject...
  • Vacation Home
    Let's say John Doe lives in Minneapolis. He gets sick of the winters there and buys a...
  • Tax Lien
    When a taxpayer fails to pay either income taxes or property taxes, the taxing authority...