A share class represents a specific category of shares or stocks that provide its holders with specific rights or privileges. It is also referred to as a class of shares or shares classification. Furthermore, within the context of common stock, different share classes have different levels of voting rights. These are Class A share and Class B share, and in some cases, Class C share.

The Share Classes of Common Stock: Class A, Class B, and Class C Stocks

Companies can structure voting rights in different ways. One of which is to issue different classes of shares or common stocks. Doing so would allow them to raise capital for the purpose of expanding businesses or funding their operations while also protecting themselves from possible hostile takeovers from outsiders.

Remember that common stocks grant stockholders the right to participate in the direction of a particular issuing company by electing its board of directors and voting for companywide policies such as strategies and resolutions. The different classes of common stocks confer different levels of voting rights. Take note of the following:

Difference Between Class A Shares vs Class B Shares and Class C Shares

Class A common stocks are traditionally accompanied by more voting rights than Class B common stocks. For example, owning one Class A share will grant the holder 100 voting rights versus owning one Class B share that grants 1 voting right.

Numerous companies do not sell Class A shares to the public or the stock exchange of the stock market. They are often offered or reserved to those in management positions such as directors, executives, and consultants, as well as early investors. The exclusivity of this share class allows a particular company to retain adequate control.

There is no standard as regards the naming convention of share classes. Tradition tells that Class A shares denote having more voting rights. However, this is not always the case because companies are free to decide the inclusions attached to each share class.

A particular company might offer Class A and Class B common stocks. Class A stocks provide more voting rights than Class B. Some also offer Class C common stocks with lesser voting rights than Class B common stocks. In some cases, another company may label its common stocks as Class A and preferred stocks as Class B.

Of course, within the context of common stocks, the different share classes represent the level of voting rights. There are also instances in which a particular class—such as a Class B common stock—represents lower repayment priority in the event a company liquidates.

Note that investing in stocks is not straightforward. It is always better to know how a particular company defines its share classes or its share classes of common stocks before choosing and investing. The definitions can be found on its prospectus, bylaws, and charter. It is also important to choose stocks that are aligned with specific financial goals and objectives.