Key Takeaways

  • Voting shares grant shareholders decision-making power on corporate matters, while nonvoting shares typically offer financial benefits without governance influence.
  • Companies often issue nonvoting stock to raise capital without diluting control of founders or key investors.
  • Nonvoting shares may still provide dividends, liquidation rights, and access to financial reports, even without voting privileges.
  • Dual-class share structures allow businesses to offer both types, balancing investor appeal with leadership control.
  • The rise of super-voting shares and unbalanced voting structures has raised governance debates about shareholder rights and company accountability.

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.

Key Rights and Limitations of Nonvoting Shares

Nonvoting shares are designed to separate economic ownership from control. While they do not grant shareholders a say in corporate decision-making—such as electing directors, approving mergers, or amending bylaws—they still come with significant financial rights. These may include:

  • Dividend Entitlements: Nonvoting shareholders are often eligible for regular dividend payments, sometimes at the same or even higher rates than voting shares.
  • Liquidation Rights: They generally retain a claim on company assets if the business dissolves.
  • Transferability: Nonvoting shares can usually be sold or transferred freely, providing liquidity to investors.
  • Access to Information: Even without voting rights, shareholders typically retain the right to receive financial statements and inspect corporate records.

Some jurisdictions and corporate charters provide limited voting rights under specific circumstances—such as changes to share class rights, mergers, or when a company misses dividend payments. This ensures nonvoting shareholders have a voice in events that could materially affect their interests.

Why Companies Issue Nonvoting Shares

Companies often issue nonvoting shares as part of a dual-class stock structure to balance growth capital with founder or management control. Common reasons include:

  • Preserving Strategic Vision: Founders retain decision-making power even after raising significant outside capital.
  • Avoiding Hostile Takeovers: Concentrated voting power makes it more difficult for activists or competitors to seize control.
  • Attracting Passive Investors: Some institutional investors prefer predictable returns over governance influence.
  • Facilitating Employee Compensation: Nonvoting shares can be used in employee stock plans without impacting corporate governance.

However, this structure can deter activist investors and limit the influence of institutional shareholders. In some cases, companies with nonvoting stock face lower market valuations due to investor concerns about accountability and governance.

Maintaining Control

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.

Risks and Criticisms of Nonvoting Structures

While nonvoting shares offer strategic advantages, they also draw significant criticism from regulators, investors, and governance advocates. Common concerns include:

  • Reduced Accountability: Concentrated control can allow founders or insiders to pursue self-interested policies with limited oversight.
  • Misaligned Interests: Shareholders without voting power have little influence on issues like executive compensation or board appointments.
  • Perpetual Control: Dual-class structures with no sunset provisions can entrench leadership indefinitely, even if performance declines.
  • Market Perception: Some investors avoid nonvoting shares altogether, leading to reduced demand and lower share prices.

In response, some companies adopt sunset clauses—automatically converting nonvoting shares into voting ones after a set period or when founders’ ownership drops below a threshold. This approach seeks to balance control with long-term accountability.

Examples of Dual-Class Structures in Practice

Several high-profile companies have implemented dual-class structures with nonvoting shares to retain control:

  • Snap Inc.: Issued entirely nonvoting shares in its IPO, sparking debate about shareholder rights.
  • Meta Platforms (formerly Facebook): Uses super-voting Class B shares to ensure founder control despite public ownership.
  • Alphabet (Google): Maintains three classes of shares—Class A (one vote), Class B (ten votes), and Class C (nonvoting)—allowing founders to steer corporate decisions.

These examples illustrate how nonvoting structures can support long-term strategic goals while simultaneously limiting shareholder influence, underscoring the importance of understanding share classes before investing.

Frequently Asked Questions

  1. Do nonvoting shareholders have any rights?
    Yes. They typically retain rights to dividends, company information, and liquidation proceeds, though they generally cannot vote on most corporate matters.
  2. Can nonvoting shares ever gain voting rights?
    In certain cases—such as mergers, significant charter amendments, or missed dividends—nonvoting shares may temporarily gain voting rights as outlined in company bylaws or state law.
  3. Why would an investor buy nonvoting shares?
    Investors seeking income or exposure to a company’s growth without a need for governance influence may find nonvoting shares attractive.
  4. Are nonvoting shares worth less than voting shares?
    Often, yes. Because they lack governance power, nonvoting shares may trade at a discount compared to voting shares, though this varies by company and market demand.
  5. Can nonvoting structures be challenged by shareholders?
    Shareholders can challenge unfair practices, but courts typically uphold dual-class structures if they are properly disclosed and approved in accordance with corporate law.

If you need help with nonvoting, 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.