Key Takeaways

  • Class A common stock typically offers superior voting rights and governance control compared to other share classes.
  • These shares are often reserved for founders, executives, or institutional investors to retain company control.
  • Class A shares can provide cost advantages for long-term investors through lower 12b-1 fees and breakpoint discounts.
  • Differences in voting rights, conversion features, and fee structures are central to distinguishing Class A from B and C shares.
  • Investors should evaluate investment horizon, voting rights, and fee structures before selecting a stock class.

What Are Class A Shares?

Class A shares are common or preferred stocks that offer special benefits to owners. Class A shares are the best class of stock. Upper- level management, executives, owners, and founders of the company usually hold this kind of stock. It offers the highest level of voting rights, too.

Key Characteristics of Class A Common Stock

Class A common stock generally comes with enhanced voting rights—often multiple votes per share—compared to Class B or Class C stock. This structure is designed to keep control within the hands of company founders or senior management. These shares may be publicly traded or retained as restricted shares within the company.

Common traits of Class A stock include:

  • Multiple votes per share (e.g., 10:1 vs. Class B)
  • Greater influence over corporate decisions
  • Limited public availability in some companies
  • High liquidity in publicly traded companies like Google or Meta, which issue dual-class shares to maintain founder control

Why Do Class A Shares Matter?

Classes of stock often have ownership restrictions. They also might have different purposes. For instance, some stock classes are for investment purposes. Some sell at different prices, and some pay different dividends.

Class A shares offer the most benefits. Still, any good company's stock classes shouldn't matter to investors. All the stocks have some value, just not the same benefits. The stock class doesn't affect the average investor's profit share. That's still determined by the company's actual performance.

Most of the time, Class A shares are a simple way to give top executives more power over the business. These shares are also a great way to prevent hostile takeover bids.

What Are Stock Classes?

The first thing to understand is how stock classes work. It's a type or group of stock shares from mutual funds, each of which has the same rights and privileges. No share in a class is better or worse than another. Shares of certain classes are much better than others, though.

The government rarely regulates stock classes. Businesses have the power to decide their own rules via the company charter. The two primary classes of corporate stock are:

  • Common Stock: Investors who own this class of stock earn dividends when the company does well. They lose nothing if the company does poorly. The exception is if the company goes bankrupt. In that situation, a person loses the full investment amount. That's why common stockholders have the most at risk.
  • Preferred Stock: Investors who own preferred stock have much more power within the company. They get voting rights, shareholder benefits, and protections against company bankruptcy. Preferred stockholders enjoy many privileges and little risk. The name tells the story. Preferred stock is better.

How Do Class A Shares Work?

Share classes exist because a company's management team wants to control the direction of the business. Class A shares are a way to do so. While other types of stock such as Class B may come with voting rights, the owners of Class A shares will have more votes per share. They'll keep the power this way.

For example, a Class B stock comes with one vote per share. The management team would write the business charter to give Class A stock five votes per share. That way, the highest level of management would keep up control of the company. Generally, the people who hold Class A shares are C-level executives and members of the board of directors.

What Other Benefits Do Class A Shares Have?

A few other key benefits are:

  • Dividend priority: Picture a line where everyone has their hand out. Each person wants money. Dividend priority means that the people with Class A shares get to move to the front of the line. When a company pays dividends, anyone owning Class A shares gets paid first.
  • Liquidation protection: Should a company fail, a Class A shareholder has investment protection. The first people who get paid when a business collapses are people owed debts. Class A shareholders are second in line. That gives them a better chance of recovering their investment if the business goes bankrupt.
  • Better conversions: In some cases, a Class A share has more value than a regular share. In the example above, a Class A share with five times the voting rights of a lesser share could have five times the value. The company charter spells out the real value of each share class.

A hidden benefit of Class A shares stems from their scarcity. These shares aren't available to the public. They also aren't available in trade.

The idea is that only upper management controls Class A shares. They keep primary voting rights for all major business decisions. This keeps executives from worrying about their own place in the company. Instead, everyone can focus on building a better future for the business. They know that their position is secure due to the static nature of Class A shares.

Class A Common Stock in Dual-Class Structures

Many prominent companies use dual-class structures to separate control from economic ownership. In these cases, Class A shares might be available to the public with limited voting rights, while Class B shares are privately held and carry superior voting power. However, some companies invert this, offering Class A shares with higher voting rights retained by insiders and selling Class B shares to the public.

Examples include:

  • Meta (Facebook): Class A shares are public with one vote per share, while Class B shares held by Mark Zuckerberg offer ten votes per share.
  • Alphabet (Google): Public investors get Class A shares (GOOGL) with voting rights and Class C shares (GOOG) without them, while Class B shares with super-voting rights are held by insiders.

This structure ensures strategic continuity and resistance to hostile takeovers while still accessing capital from public markets.

Does Preferred Stock Have Any Negatives?

No ownership class is perfect. Preferred stock has a few problems, especially for owners of stock other than Class A shares. Potential problems include:

  • Lack of voting rights/power: Even with some voting rights, Class B and Class C shareholders have limited power. The bylaws of most business charters heavily skew toward Class A shareholders. By design, they own control of almost all company votes.
  • Fixed dividends: Most preferred stock has a set return rate for dividends. A shareholder won't make more when the company does better. The only exception is if a corporation offers participating preferred stock instead of normal preferred stock. Fixed dividends limit an investor's growth potential.

Does Common Stock Have Any Advantages over Preferred Stock?

The disadvantages of preferred stock are also the advantages of common stock. While preferred stockholders have little control over a company's direction, common class stockholders get to vote on a lot of issues. Common stockholders may even decide the outcome of corporate elections. This voting right gives them some control over the future direction of the company.

Also, common stockholders have unlimited earning potential. The preferred stockholders receive their money first when the corporation pays dividends. Everything that's left over becomes part of an excess pool of money. Common stockholders divvy up that money. A person with a larger investment in common shares is able to earn a lot more money in these situations than someone with fixed dividends.

How Does Pricing Work for Stock Classes?

A person eligible to buy Class A stock will pay what's known as a front-end charge. This fee isn't an investment. You don't get ownership credit for the cost. Still, Class A ownership has a couple of cost benefits. Shareholders pay a lower fee, the marketing or distribution fee for a fund, known as a 12b-1 fee. Their annual expenses are also cheaper than lower and common classes of stock.

A buyer of Class A shares also has a chance to save money through the breakpoint. This is the purchase amount that gives the buyer a discount on sales charge. A person can qualify if he:

  • Makes a big Class A share purchase
  • Commits to purchase more mutual fund shares on a consistent basis
  • Own other investments from the same mutual fund family

Class B shares don't have the front-end charge. The positive is that every dollar goes directly toward ownership interest. The negative is that shares may come with a possible deferred sales load. Shareholders would pay this fee when they sell the Class B shares.

The exact rules are in the company charter.  Class B shareholders should read them carefully to avoid a surprise when they reduce their investment in Class B shares. There's a reason the deferred sales load fee is also called an exit fee. Its intent is to make shareholders think twice about selling stock.

The cost of the exit fee goes down each year as a reward to loyal investors of Class B shares. Sometimes, a company charter will even turn Class B shares into Class A shares after an extended holding period.

Other costs apply to this share class. Class B shares are likely to have a higher 12b-1 fee. The annual costs are also higher. For these reasons, an investor should always pick Class A shares over Class B shares if there is a choice.

Class C shares are the worst option in terms of cost. They'll have the highest 12b-1 fees. The annual costs are also the most expensive. Class C shares also can't improve into Class B shares or better. They'll always remain the Class C type. That's bad since Class C shares have the highest cost ratio.

This class type also has little if any voting power. Finally, Class C shares are subject to both entrance and exit fees. They are usually lower than Class A and Class shares with similar restraints, though.

Expense Ratios and Breakpoints Explained

Class A shares in mutual funds often offer front-end sales charges but compensate with lower ongoing expenses, such as reduced 12b-1 marketing fees. Long-term investors may also qualify for breakpoint discounts, which reduce the sales load based on the total investment amount.

For example:

  • Breakpoints typically start at $25,000 and increase with investment size.
  • Investors can qualify via rights of accumulation, letter of intent, or combined holdings with other accounts in the same fund family.

Class A shares may be ideal for those who:

  • Invest a large initial sum
  • Have a long-term investment horizon
  • Want to minimize recurring fees over time

What Are Class D / Class R / Class I Stocks?

These are the other three types of stock classes. They are:

  • Class D stocks: Class D stocks let a person invest without paying upfront fees or exit fees. All the money goes toward the stock. People like Class D shares because of their low expense ratios and their lack of 12b-1 fees. These shares would be more popular if they were available to everyone. Unfortunately, only specific retirement plans and brokerage firms can offer them. Everyone with the ability to buy Class D stocks should do so.
  • Class R stocks: Class R stocks also don't have upfront fees, but they do have 12b-1 fees. Since employers usually match these funds in a 401(k), the extra fee isn't a big factor.
  • Class I stocks: These shares are for investors with a lot of surplus money. Someone willing to make a large investment, possibly $1 million or more, can buy Class I shares. They'll have lower fees similar to pension funds and endowments. These shares are actually the cheapest of all mutual fund options. Plus, companies will convert other share classes into I shares once the investor meets a set criteria.

When Should an Investor Buy from a Class?

Again, Class A shares are always best due to the voting privileges and other advantages. Still, each class has situations where it's a good buy.

  • Class A shares: are best for long-term investors. They'll have lower fees on an annual basis. Also, Class A stock doesn't have entrance or exit fees.
  • Class B shares: are best for medium-term investors. Someone who wants to own a stock for a long time but less than a decade should consider Class B shares. That's especially true with companies whose exit fees decrease over time. Similarly, businesses whose Class B shares can improve to Class A shares are worthwhile investments.
  • Class C shares: are best for short-term investors. Still, it's the type of stock that someone should hold for at least a year. Class C shares are capable of dramatic movement that can benefit the investor. Over time, the cost of owning this stock will increase. That's why it's not a good investment over a longer term.

Risks and Considerations for Class A Shares

While Class A common stock offers clear advantages, there are risks and trade-offs:

  • Illiquidity risk: Some Class A shares may be privately held and not available on public exchanges.
  • Concentration of control: Founders or executives may make decisions that benefit them over common shareholders.
  • High upfront fees: Mutual fund Class A shares often require a front-end load, reducing initial investment impact.

These considerations make it essential for investors to assess whether their goals align with the structure and cost of Class A shares, particularly in mutual fund investments.

Frequently Asked Questions

  1. What makes Class A common stock different from regular common stock?
    Class A common stock often has enhanced voting rights and is sometimes restricted to company insiders, while regular common stock typically has one vote per share and is widely available.
  2. Can I convert Class A shares to another class?
    Some companies allow conversion of Class A shares into other classes, such as Class B or Class C, depending on the company’s charter and investment structure.
  3. Do all Class A shares have voting rights?
    Not always. In some dual-class structures, Class A shares may be public and have limited or no voting rights, while insider-held shares have more.
  4. Are Class A shares a good investment for everyone?
    They are best for long-term investors due to lower annual fees and potential voting influence, but they may not be suitable for short-term or fee-sensitive investors.
  5. How can I tell what rights my Class A shares carry?
    Always review the company’s prospectus or corporate charter to understand the rights and restrictions attached to a specific class of stock.

If you need help understanding class a common stock, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.