Class B shares are a classification of stock that provide a different amount of voting privileges than provided by Class A shares issued by the same company. Shares of this type may also carry higher annual expenses for a specified period of time than other classified stocks, although they rarely are structured with a front-end load like Class A classified stock. While circumstances vary, Class B shares are often structured and governed by provisions within the bylaws of the issuing corporation.
It is not unusual for a corporation to issue more than one class of stock. In the case of Class B shares, many companies that utilized the ESOP, or Employee Stock Ownership Plan during the 1980s and early 1990s, would choose to issue this type of shares. They were issued to employees of the company, and often served as a substitute for a more traditional retirement plan.
One key area where Class B differs from other classifications of shares is with voting rights. Often, shares of stock that are designated with a class of “A” are allowed more voting rights than Class B. However, there is no ironclad rule that this must be the case. Depending on the terms for the issuing of stock outlined in the company bylaws and charter, all classes of stocks may provide the same level of voting privileges.
There is a common myth that Class B shares are somehow inherently of less value than other types of shares. This may or may not be the case. Just as with the issue of voting rights, the structure of the foundational company documents will determine the status of the shares within the issue structure. When compared to the guidelines that impact other types of shares, an investor may find that Class B are at least as good an investment, and possibly even the best option.
