What it means
The reason for a second class is almost always control. A company that wants outside capital without handing over decision making issues one class to investors with ordinary voting and keeps another class, often Class B, with enhanced voting for the people who intend to run the business for decades.
Enhanced voting typically means ten votes per share, though five and twenty both appear. The effect is that a holder with a modest economic stake can command a clear majority of votes, which is why these structures are described as separating ownership from control.
Class B shares are usually restricted rather than freely traded. They frequently cannot be sold on a public market at all, and many constitutions convert them automatically into ordinary shares the moment they are transferred outside a defined family or founder group.
Some structures add a sunset clause, which collapses the extra votes after a fixed number of years or once the founder's holding falls below a threshold. Institutional investors tend to push for these, because a permanent super-voting class outlives the person whose judgement was the original justification for it.
In other companies the letters mean something entirely different: Class B might be a lower priced share representing a fraction of a Class A economic interest, or a class with no votes but the same dividend. The lesson is always to read the rights rather than trusting the label.
In practice
Real-world examples.
Example
A founder led software company lists a minority of its equity as Class A shares. The founder keeps Class B shares with ten votes each, which convert into Class A automatically on any sale, so the control premium cannot be sold to a third party.
Example
A regional newspaper group has used a Class B structure for three generations to protect editorial independence. Outside investors accept it because the constitution also requires a supermajority of both classes to approve any sale of the titles.
Example
A pension fund declines to invest in a dual class listing because its governance policy requires one vote per share. The company later adopts a ten year sunset clause on its Class B shares and the fund reconsiders at the next review.
Formula
Calculation
Voting power of a class = (Shares in that class x Votes per share) / Total votes across all classes x 100
Cedarpoint Industries has 12,000,000 Class A shares with one vote each and 3,000,000 Class B shares with ten votes each, all held by the founding family.
Class A votes = 12,000,000 x 1 = 12,000,000.
Class B votes = 3,000,000 x 10 = 30,000,000.
Total votes = 12,000,000 + 30,000,000 = 42,000,000.
Class B voting power = 30,000,000 / 42,000,000 x 100 = 71.4%.
Economic ownership tells a different story. Total shares are 12,000,000 + 3,000,000 = 15,000,000, so the family owns 3,000,000 / 15,000,000 = 20% of the company and is entitled to 20% of any dividend, while controlling 71.4% of the votes. If a $6,000,000 dividend is declared across all shares equally, the family receives $6,000,000 x 0.20 = $1,200,000.Case study
Seen in the real world.
Thornbury Optical is an entirely fictional eyewear manufacturer used to illustrate how a Class B structure is negotiated. The founder wanted $30,000,000 to expand into two new countries but was unwilling to accept an investor majority on the board, having spent twenty years building a supply chain around ethical sourcing standards she believed a financial owner would quietly dismantle.
The agreed structure gave investors Class A shares with one vote each and full dividend rights for 40% of the economics, while the founder converted her holding into Class B shares with ten votes each. Investors insisted on two protections: a sunset that removes the extra votes ten years after the funding round, and a list of reserved matters, including any sale of the business, requiring approval from a majority of Class A holders separately.
The illustrative outcome is that both sides got the thing they actually cared about. The founder kept day to day strategic control through the growth phase, and the investors kept a veto over the decisions that would determine whether they ever saw their money back.
Watch out
Common mistakes.
- Assuming Class B is always the junior or cheaper class. In some companies it is the controlling class with ten votes per share, and in others it is a low priced non-voting stub, so the letter tells you nothing on its own.
- Valuing a Class B holding purely on its share count. Control has value in its own right, and a block that determines board composition is not worth the same per share as a passive holding.
- Overlooking automatic conversion. A Class B share that becomes an ordinary share the moment it is sold cannot transfer its voting premium to a buyer, which materially changes what a stake is worth in a sale.
Questions
People also ask.
Do Class B shares receive the same dividend?
Usually yes, since most dual class structures differ on votes rather than economics, but the constitution can and sometimes does set different dividend rights.
Are dual class shares allowed on every exchange?
Not everywhere, and several markets and index providers restrict eligibility or require a sunset clause, so the structure can limit which investors are able to buy.
What is a sunset clause?
A provision that ends the enhanced voting rights after a set period or once the founder's stake drops below an agreed level, converting the class into ordinary shares.
From the founder's library
Take it further with the book.
Build your financial confidence beyond this definition. Shihan's full-length guide, Accounting Fundamentals, takes the same plain-English approach and turns it into a complete, practical playbook for non-finance managers, business owners and students - with chapter-end quiz answers and presentation slides included.
25% off with code MMHQ25, applied at checkout. Priced in USD - checkout may show the equivalent in your local currency.
View the book and save 25%