Dual-Class Ownership
Dual-Class Ownership: a short-lived 1980s buddy sitcom about an upper class snob and working class shlub who end up co-owners in a water taxi service in the Florida Keys.
Also, the term refers to the ownership structure of some companies.
Owning stock comes with two basic benefits. One is economic. You are entitled to the financial benefits the company produces (assuming there are any).
The other benefit is managerial. You get to be in charge. The owners (meaning the stockholders) ultimately decide things like who gets to be CEO or whether or not the company will sell itself to the mega-conglomerate buying up all the competition.
Under the dual-class system, the company will issue two types of shares, called classes. Typically, they get identified as Class A and Class B (though, it would be amazing if a company got a little more creative and went with something like Class Zipper and Class Buttonfly).
The two classes will have different mixes of economic and voting powers.
You start a frozen custard stand with your cousin. However, you're afraid your cousin will stage a coup someday and wrestle control of Custard Heaven from you. To prevent this, you create two classes of stock: Class A and Class B. Class A has all the economic benefits. These shares, you and your cousin split 50/50. Class B shares have all the voting/decision-making power. You take 75% of the Class B shares and leave him with 25%.
All the financial rewards from Custard Heaven are split 50/50, in accordance with the split of Class A shares. When the stand has $100,000 in cash for dividends, you get $50,000 and your cousin gets $50,000.
However, when it comes to decide whether to open a second location or whether you're going to sell out to Devil Custard down the street, you get 3/4 of the decision power, because that's how much Class B stock you own.
The takeover offer comes in from Devil Custard. Your cousin says "yes." You say "no." The result isn't a tie...you win, because you hold 75% of the voting Class B shares. He only has 25%.
Related or Semi-related Video
Finance: What is non-voting stock?4 Views
finance a la shmoop- what is non-voting stock? hmm well it's stock that doesn't
vote. bet you're shocked to hear that. most people need a PhD in finance to [stock wears an "I didn't vote" sticker.
understand that notion. but really that's it in most cases common stock carries
with it the right to vote. and in fact it's the common shareholders who elect
the board of directors. but every now and then a potentially hostile investor
comes along and buys or wants to buy a big chunk of stock in a company. well the
amount might be a block large enough to elect that potentially hostile investor
slate or the group of people that investor wants to place on the board to
represent her evil intentions .when that happens companies will often create a
class of common stock similar in every way to its normal common only with its [stock checklist of privileges listed]
voting rights stripped away .that way the investor can own an economic interest in
the company but not monkey with the board.
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