Dual Class Shares Explained for Investors and Companies

Dual class shares can be a powerful tool for companies looking to maintain control and stability, allowing them to issue two classes of shares with different voting rights. This can be beneficial for companies that want to attract investors without giving up control.

For example, Alphabet, the parent company of Google, has a dual class share structure where the founders' shares have 10 times the voting power of the standard shares. This allows the founders to maintain control of the company.

Dual class shares can also be beneficial for investors who want to invest in companies with unique growth potential but are hesitant to invest in companies with high voting power. Companies with dual class shares can attract a wider range of investors.

Companies like Facebook and Twitter have also adopted dual class share structures to maintain control and stability.

A dual class share structure is a common way for companies to issue shares with varying levels of voting power.

In the UK, dual-class shares are typically created with two classes: A and B. Class B shares are often referred to as "founder" or "advisor shares" because they are reserved for people who created the company or had an interest in its success from an early stage.

These shares usually have more voting power than Class A shares, but the power balance can vary depending on the company's structure. For example, in a dual-class share structure, Class A shareholders might have 1,000 votes, while Class B shareholders have 2,000 votes.

Here's a simple example of how dual-class shares work:

In this example, Class A shareholders represent 66.6% of the company, but have only 33.3% of the voting power. Class B shareholders, on the other hand, represent 33.3% of the company and have 66.6% of the voting power.

Dual-class shares are a type of share structure where different classes of shares have varying voting powers. This means that some shareholders have more say in the company's decision-making process than others.

In a dual-class share structure, there may be two or more classes of shares, each with a different number of votes per share. For example, Class A shares might have 1,000 votes, while Class B shares have 2,000 votes.

A company with a dual-class share structure can have two classes of shares, such as Class A and Class B. Class A shares might represent 66.6% of the company and have 1,000 votes, while Class B shares represent 33.3% of the company and have 2,000 votes.

Here's a breakdown of the voting power for each class of shares:

In this example, Class B shareholders have twice as much voting power as Class A shareholders. This means that those in Class B have more influence over the company's decision-making process.

Dual-class shares can be beneficial for companies that want to maintain control and make strategic decisions without being influenced by external shareholders. This can be especially useful for start-ups and established businesses that want to preserve their founder's vision and leadership influence.

A dual-class share structure typically has two main classes of shares: A and B.

Class B shares are often referred to as the founders' class because they are reserved for people who created a company.

In a dual-class share structure, Class B shares usually have more voting power than Class A shares.

For example, in a company with 300 shares, Class A might have 200 shares and 1,000 votes, while Class B has 100 shares and 2,000 votes.

This means Class B investors have 66.6% of the voting power, while Class A investors have 33.3%.

The power balance between Class A and Class B shares can vary, and it's not always the case that Class B shares have the greatest voting power.

Here's a simple example of a dual-class share structure:

Let's take a closer look at some examples of dual-class stocks. Ford has two classes of shares: Class A and Class B, with the family holding 40% of the voting power through their ownership of Class B shares.

Ford's dual-class structure is a great example of how some companies have multiple classes of shares with different voting powers. Despite owning only 5.0% of the company's total equity, the family has significant control over Ford's decision-making processes.

Mark Zuckerberg and his close executives own a large portion of Facebook's Class B shares, which have ten votes each. This gives them a significant amount of voting power in the company.

Facebook's dual-class structure is a notable example of how some companies use multiple classes of shares to concentrate voting power in the hands of a few individuals.

The controversies surrounding dual-class shares have been ongoing for decades. The New York Stock Exchange (NYSE) initially banned dual-class shares in 1926 due to concerns about fairness and voting power.

In 1980, the NYSE reversed the ban, allowing other exchanges to offer dual-class shares, and today around 7% of Russell 3000 Index companies have a multi-class structure. Google, under its parent company Alphabet, is one such company with a dual-class share structure.

The Google founders issued a statement during their IPO in 2004 that dual-class shares were necessary to protect the company's independence and objectivity. However, some people reacted negatively to this move.

Critics argue that dual-class shares can lead to a lack of accountability, as certain shareholders with superior voting rights may exercise disproportionate control without adequate checks and balances. This concentration of power can stifle dissent and discourage active shareholder engagement.

Dual-class shares have also been criticized for creating opportunities for abuse of power, allowing founders or management to prioritize their interests over those of minority shareholders. This can lead to a lack of transparency and accountability.

Some corporate governance experts contend that dual-class shares can contribute to the entrenchment of management, making it difficult for the company to adapt to changing market conditions.

Investing in dual class shares can be a complex and nuanced decision. It's essential to understand the implications of this unique corporate structure before committing your funds.

You can invest in companies with dual-class shares on eToro, but it's crucial to remember that your voting rights may carry less influence than those who hold Class B shares. This is evident in a simple example where Class B shareholders have twice as much power when it comes to voting as those in Class A.

Investors need to assess how the weighted voting rights present in a company's dual-class shares can influence their investment decisions. Understanding the implications of this unique corporate structure is essential for making informed choices that align with their financial goals and risk tolerance.

To evaluate the balance of power between different classes of shareholders, you should scrutinize the board structure, composition, and independence. This is particularly important when there's a significant disparity between Class A and Class B shares, as seen in the example where Class B shareholders represent 33.3% of the company and have 66.6% of the voting power.

A key consideration for potential investors is the influence on decision-making. You should gain insights into the specific matters in which Class B shareholders can exert their superior voting power and evaluate if this concentration of control aligns with the company's long-term goals and values.

Investing in companies with dual-class shares entails unique risks, including potentially reduced voting power and fewer protections compared to traditional single-class share companies. This requires considering your risk tolerance and whether you're comfortable with these potential downsides.

To make informed investment decisions, you should also take into account the potential for future share dilution. As the company continues to grow and attract more investors, additional classes of shares may be introduced, further diluting voting power.

Here are some key considerations for potential investors:

One major regulation is the restriction on issuing more multiple-vote shares post-listing. This means that the proportion of multiple-vote shares against one-vote shares cannot increase after a company goes public.

Corporate actions that increase the proportion of multiple-vote shares are not allowed. This includes any actions that dilute the voting rights of one-vote shareholders vis-à-vis multiple-vote shareholders.

Only corporate actions that do not increase the proportion of multiple-vote shares are permitted. This includes rights issues that are undertaken on a pro-rata basis, where all shareholders are treated equally.

Dual-class stock structures have a history dating back to the Dodge Brothers' first public offering in the car business, which only offered shares with non-voting powers.

The dual-class stock structure was initially banned, but the exchanges later allowed firms with dual-class structures in the 1980s due to intense competition from other exchanges.

In the technology industry, dual-class stock structures are becoming more common, but some stock index firms like Standard & Poor's don't usually accept multiple stock structures.

The Malaysian government has proposed plans to allow the issuance of dual-class shares as part of the revised Budget 2023, but public-listed companies must await regulatory developments for their adoption.

Dual-class stock structures have a long history, dating back to the Dodge Brothers' first public offering in the car business. They initially only offered shares with non-voting powers.

The ban on dual-class stock structures was eventually lifted in the 1980s due to intense competition among exchanges. This allowed firms with dual-class structures to list themselves.

Only some Asian markets allowed dual-class structured companies to list themselves earlier, but the trend is now spreading globally. The competition among global stock exchanges is continuously increasing.

Stock index firms like Standard & Poor's typically don't accept multiple stock structures, which means businesses with a dual-class structure are often excluded from their listings.

The potential for dual-class shares in public-listed companies is still pending further announcements from Bursa Malaysia and/or the Securities Commission Malaysia. This means that public-listed companies must wait for regulatory developments before adopting dual-class shares.

The Malaysian government has proposed plans to allow the issuance of dual-class shares as part of the revised Budget 2023. This could pave the way for public-listed companies to explore this option.

Dual-class shares offer several benefits, including the ability for a company's founders and senior management to make important policy choices with additional voting power. This can be a game-changer for companies that want to maintain control and make strategic decisions without interference from other shareholders.

Here are some potential advantages of dual-class shares in public companies:

Private companies often issue dual class shares as a way to maintain control and limit the influence of external investors.

Private companies can issue IPOs to raise capital and gain access to public markets.

For example, Facebook issued dual class shares in its IPO, allowing CEO Mark Zuckerberg to maintain control with Class B shares that have 10 times the voting power of Class A shares.

This structure allows private companies to maintain control and limit the influence of external investors, even after going public.

Private companies can use IPOs to raise capital and gain access to public markets, but this may not always be the best option for their long-term success.

Private Limited Companies can establish a dual-class share structure that grants distinct voting rights to each class of shares, allowing the Founder to retain significant decision-making control.

This strategic approach involves clearly describing the classes of shares and their corresponding voting rights in the company's constitution, as required by Section 69(d) and Section 90(1) of the Malaysian laws.

For instance, a company may have two classes of shares: Class A Shares with three votes per share, typically held by the Founder or original shareholders, and Class B Shares with one vote per share, offered to Investors, the public, or third parties.

By implementing a dual-class structure, private limited companies can attract funding from external investors while maintaining control, making it an attractive option for entrepreneurs looking to grow their business.

When going public, companies often face restrictions on their shareholdings. Multiple-vote shareholders are subject to a 12-month moratorium on trading and transferring their shares. This means they can't buy or sell their shares, including multiple-vote shares, during this period.

The IPO moratorium applies to both multiple-vote and one-vote shares. This restriction aims to ensure that shareholders don't sell their shares too quickly after the IPO, which can impact the company's stability.

Multiple-vote shareholders can't transfer or dispose of their shareholding, including both multiple-vote and one-vote shares, during the 12-month period from the time of the IPO.