What it means
Company law in most countries lets a business divide its share capital into classes and attach a different bundle of rights to each one. A B share is simply the second of those classes, and its rights are whatever the company's constitutional documents say they are.
In a dual-class listed company, one class is usually sold to the public and the other is kept by founders, families or early backers. The class kept by insiders often carries several votes per share while the public class carries one, which lets a small economic stake control the boardroom.
Depending on the company, the insider class may be labelled A or B, so the label alone tells you nothing. In the fund world, B shares traditionally meant units bought with no charge at the front and a contingent deferred sales charge at the back.
The charge falls away over several years, so an investor who sells early pays the most. These share classes have been phased out by many managers, but they still turn up in older holdings.
The reason non-finance managers care is that voting rights and cash rights can come apart. A shareholder with 20% of the economics and 70% of the votes can block a sale, replace directors or push through a strategy the majority of owners dislike.
That gap explains many boardroom outcomes that look irrational from the outside. The practical check is simple: find the share class table in the annual report or the prospectus and read the votes per share, the dividend entitlement and any conversion right.
Many B shares convert into A shares automatically when they are sold or when a founder leaves, which quietly resets control over time.
In practice
Real-world examples.
Example
A software company lists on the stock market, selling A shares to the public while the two founders keep B shares with ten votes each. Three years later an acquirer offers a premium for the business and the founders decline, because their 22% economic stake carries 74% of the votes. Public shareholders have no way to force the sale through.
Example
A family-owned food manufacturer brings in outside investors but issues them B shares with no voting rights and a fixed preferred dividend. The family keeps every vote, and the investors accept that in exchange for first claim on dividends each year.
Example
A retail investor inherits a fund holding made up of B shares bought years earlier. Selling in year two would trigger a deferred sales charge of 3% of the proceeds, so the adviser recommends waiting until the charge has run off before switching funds.
Formula
Calculation
Voting power of a class = (shares in that class multiplied by votes per share) divided by the total votes of all classes. Suppose a company has 8,000,000 A shares with one vote each held by public investors, and 2,000,000 B shares with ten votes each held by the founding team. A share votes come to 8,000,000 multiplied by 1, which is 8,000,000 votes. B share votes come to 2,000,000 multiplied by 10, which is 20,000,000 votes. Total votes are 8,000,000 plus 20,000,000, which is 28,000,000. The founders therefore control 20,000,000 divided by 28,000,000, or 71.4% of the votes, while owning only 2,000,000 of the 10,000,000 shares in issue, which is 20% of the economics.Case study
Seen in the real world.
Northfield Press is an illustrative, entirely fictional publishing group used here to show how share classes behave in practice. Its founder floated 60% of the economics as A shares at $10.00 each, raising $60,000,000, and kept the other 40% as B shares carrying five votes each.
Two years later an activist fund built a 15% A share position and demanded the sale of the loss-making magazine division. The founder held 40% of the shares but about 77% of the votes, so the resolution failed at the annual meeting. The lesson in this fictional case is that buying the economics of a business is not the same as buying a say in how it is run.
Watch out
Common mistakes.
- Assuming B shares are always the weaker class, when in several large companies the B class is the one with the extra votes.
- Comparing the share prices of two classes without checking whether the dividend entitlement is identical.
- Buying fund B shares for a short holding period and then paying a deferred sales charge on the way out.
Questions
People also ask.
Do B shares always have fewer votes than A shares?
No, the rights depend entirely on the company's own documents, and in some structures the B class carries ten votes per share while the A class carries one.
Can a B share be converted into an A share?
Often yes, and conversion on sale or on a founder's departure is a common feature designed to let the extra votes expire with the original holder.
Are dual-class shares allowed in stock market indices?
Some index providers restrict or exclude companies with unequal voting rights, which can reduce demand for the shares from passive funds.
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