Class Of Shares

A class of shares is a type of listed company stock that is differentiated by the level of voting rights shareholders receive. For example, a listed company might have two share classes, or classes of stock, designated as Class A and Class B. Owners of companies that have been privately owned and go public often create class A and B share structures with different voting rights in order to maintain control and/or to make the company a more difficult target for a takeover.

Class of shares can also refer to the different share classes that exist for load mutual funds. There are three share classes (Class A, Class B and Class C) which carry different sales charges, 12b-1 fees and operating expense structures. Whether referring to different share classes of a company's stock or the multiple share classes offered by advisor-sold mutual funds, both cases refer to different rights and costs owned by holders of each share class.

The multi-class share structure at Google came about as a result of the company's restructuring into Alphabet Inc. in October 2015 (NASDAQ: GOOG). Founders Sergey Brin and Larry Page found themselves owning less than majority ownership of the company's stock, but wished to maintain control over major business decisions. The company created three share classes of the company's stock as a result. Class-A shares are held by regular investors and carry one vote per share. Class-B shares, held primarily by Brin and Page, have 10 votes per share. Class-C shares are typically held by employees and have no voting rights. The structure gives most voting control to the founders, although similar setups have proven unpopular with average shareholders in the past.

Advisor-sold mutual funds can have different shares classes with each class owning a unique sales charge and fee structure. Class-A mutual fund shares charge a front-end load, have lower 12b-1 fees and a below-average level of operating expenses. Class-B mutual fund shares charge a back-end load and have higher 12b-1 fees and operating expenses. Class-C mutual fund shares are considered level-load - there's no front-end load but a low back-end load applies, as do 12b-1 fees and relatively higher operating expenses.

The back-end load, known as a contingent deferred sales charge (CDSC) may be reduced or eliminated depending on how long shares have been held. Class-B shares typically have a CDSC that disappears in as little as one year from the date of purchase. Class-C shares often start with a higher CDSC that only fully goes away after a period of 5-10 years.

Investors sometimes opt for an investment in preferred shares, which function as a cross between common stock and fixed income investments. Like common shares, preferred stock has no maturity date, represents ownership in the company and is carried as equity on the company's balance sheet. In comparison to a bond, preferred stock offers a fixed distribution rate, no voting rights and a par value. 

Preferred shares also rank above common shares in a company's capital structure. Therefore, companies must pay dividends on preferred shares before they pay dividends for classes of common shares. In the event of liquidation or bankruptcy, preferred shareholders will also receive their payment before holders of common stock.