Class A Ordinary Shares

Definition

Class A common stock refers to shares that have the rights of common stock but come with special provisions or restrictions regarding voting rights and dividends. These shares are typically held by company insiders or specific investors. Class A common stock often enjoys higher rights and privileges, such as priority in receiving dividends or exercising voting rights.

Origin

The concept of Class A common stock originated from the need for diverse corporate governance structures, particularly in the late 20th century. As companies grew larger and shareholder structures became more complex, businesses began introducing different classes of stock to meet the needs of various investors and management requirements.

Categories and Features

Class A common stock is often contrasted with Class B or other classes of common stock, with its main features being special arrangements for voting and dividend rights. Class A shares may have greater voting power in major company decisions or priority in profit distribution. This arrangement is typically used to ensure that founders or core management retain control over the company.

Case Studies

Google (now Alphabet Inc.) introduced a Class A and Class B stock structure during its initial public offering (IPO). Class A shares have one vote per share, while Class B shares have ten votes per share, ensuring that founders and executives maintain control over the company. Another example is Facebook, which has a similar Class A and Class B stock structure, where Class B shareholders (such as founder Mark Zuckerberg) have higher voting rights to maintain control over the company.

Common Issues

Investors often misunderstand the arrangements of voting and dividend rights in Class A common stock, assuming all Class A shares have the same rights. In reality, the rights of Class A common stock can vary between companies, so investors should carefully read the company's charter and prospectus to understand the specific rights involved.