What Is the Difference Between Voting and Nonvoting Shares?
It is a critical piece of information as your company distributes shares and considers how their ownership affects voting on business matters at meetings.3 min read
The difference between voting and nonvoting shares is a critical piece of information as your company distributes shares and considers how their ownership affects voting on business matters at shareholder meetings. The issues surrounding such have only become more complex in recent years with the introduction of super-voting stocks and unbalanced structures allowing company owners or investors to wield large amounts of power.
Moves Made by Google
Tech giant Google made some changes in April of 2012 when they announced their proposal to create a whole new class of nonvoting stock. They created this new class of nonvoting stock by affecting a stock split. In doing so, even though the value of stocks was being diluted (this was being managed by additional incentives in things like employee fund programs and the like), this allowed the co-founders of Google to maintain the current level of control over the company. This will create three different levels of stock at Google:
- Class A Voting Stock. This means that a person will have one vote per share they own. Additionally, they will continue to trade that stock (should they choose to) under the widely known symbol of “GOOG.”
- Class B Super Voting Stock. In this case, a person would have votes per share, although this is currently owned by Google’s founders. Additionally, this means that the owners are able to vote and make decisions, unilaterally, without the “yay” vote from any of the other shareholders.
- Class C Nonvoting Stock. As the name implies, the owners of this stock cannot vote on issues regarding the management or operations of Google. Additionally, this stock trades on the stock exchange under a different symbol.
Voting vs. Nonvoting Stocks
Whether you are a business owner whose business has stocks or shares to sell or you are an individual who chooses to own stocks in various companies (generally for investment purposes), understanding the differences between voting and nonvoting stocks is important. After all, no matter what side of the investment aisle on which you sit, you want to understand your rights and know the details of what your money (or, your investment) is buying you. This type of stock arrangement is known as dual class structure.
From an economic standpoint, either type of stock is going to be of benefit to a company, as the buying and selling of stock generates income for the business. Even for those individuals who own nonvoting shares, they still get to own a piece of a (hopefully) successful, or up-and-coming business empire. For a company that is publicly held (one that trades on the New York Stock Exchange, Nasdaq, etc.), a dual class structure allows for the founders (or, their families), key initial investors, and the like to maintain their control over the company and not have their vision for the company changed or watered-down by other shareholders.
However, some potential investors may be turned off by the idea of investing in a company with a dual class structure, especially if they are not going to be guaranteed voting shares. In turn, this may end up limiting your company’s investor pool, which could have a negative financial impact.
Chances are, if you are the founder of a company, you probably wish to maintain control over it, unless you are about to retire. There are many reasons why maintaining control has value, including that it allows the controlling owner (or owners) to remain in control of the mission and vision of the company and of revenue-generating opportunities.
However, if a company is being subjected to poor management and operations practices, the rest of the shareholders are going to be severely limited as to how they can intervene unless there are provisions in the corporate charter or shareholder agreements regarding a hostile takeover of the company by the shareholders or Board of Directors.
Additionally, there are those who feel that by leaving shareholders without voting rights and keeping the entirety of control in the hands of the founders, a company is setting itself up for those individuals to take advantage of company resources and the like. While all shareholders are entitled access to financial and managerial documents, without the ability to vote, there is little that can be done. This serves as yet another reason as to why this type of structure may turn away potential investors.
If you need help with understanding the difference between voting and nonvoting shares, 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.