A:

The primary difference between Berkshire Hathaway's Class A stock (BRK-A) and Class B stock (BRK-B) is the share price. As of January 2018, Berkshire Hathaway Class A is trading for around $304,180 a share versus $202 for the Class B shares. But there are other distinctions as well.

Twenty years ago, the company was content with its highly valued, single class of stock. But the market was demanding a lower-priced, more common-stock nibble at the Berkshire pie. So in 1996, Warren Buffett, CEO of Berkshire Hathway, and the board responded by issuing 517,500 shares of Class B shares (BRK-B), offering the ability to invest in the company for, initially, one-30th the price of a Class A share of stock. A 50-to-1 stock split in 2010 sent the ratio to one-1,500th. Class B shares carried correspondingly lower voting rights as well (one-two hundredth of the per-share voting rights.)

The main reason for the introduction of Class B shares was to allow investors to be able to purchase the stock directly instead of having to go through unit trusts, or mutual funds that mirror Berkshire Hathaway's holdings. Buffett explained in his 1996 annual letter to shareholders: "As I have told you before, we made this sale in response to the threatened creation of unit trusts that would have marketed themselves as Berkshire look-alikes. In the process, they would have used our past, and definitely nonrepeatable, record to entice naive small investors and would have charged these innocents high fees and commissions." If the stock was left in the hands of unit trusts, "Berkshire would have been burdened with both hundreds of thousands of unhappy, indirect owners (trustholders, that is) and a stained reputation."

Buffett has also declared that the Class A shares will never experience a stock split because he believes the high share price attracts like-minded investors, those focused on long-term profits rather than on short-term price fluctuations. 

Along with being more accessible to retail investors, Class B shares offer the benefit of flexibility. If an investor owns just one share of Class A and is in need of some cash, the only option is to sell that single share, even if its price far exceeds the amount of capital he needs to access. In contrast, a holder of Class B shares can liquidate part of his or her Berkshire Hathaway holdings just up to the amount needed to meet cash flow requirements. Class B also provides a potential tax benefit. Its much lower price means that BRK-B stock can be passed to heirs without triggering the gift tax as passing Class A shares does.

One final difference is that Class A shares can be converted into an equivalent amount of Class B shares any time a Class A shareholder wishes to do so. The conversion privilege does not exist in reverse. Class B shareholders can only convert their holdings to Class A by selling their Class B shares and then buying the equivalent in Class A.

For related reading, see Warren Buffett: How He Does It.

RELATED FAQS
  1. Why doesn't Warren Buffett split Berkshire Hathaway stock?

    Warren Buffet's fundamental approach to investing explains his no-split policy on Berkshire Hathaway stock. Read Answer >>
  2. What is the difference between Class A shares and other common shares of company's ...

    Discover how a company can break down its common stock into multiple classes and how these classes differ from one another ... Read Answer >>
  3. Why would a company have multiple share classes, and what are super voting shares?

    Before investing in a company with multiple share classes, be sure to learn the difference between them. Read Answer >>
  4. Why are mutual fund investment minimums different?

    Discover why mutual funds carry different minimum investments, and learn about benefits that come with investing in funds ... Read Answer >>
  5. Why doesn't Berkshire Hathaway pay a dividend?

    Learn why Berkshire Hathaway, despite being flush with cash, does not pay dividends. Read Answer >>
Related Articles
  1. Retirement

    Is Berkshire Hathaway Stock Suitable for Your IRA or Roth IRA? (BRK.B, BRK.A)

    Discover how Warren Buffett's Berkshire Hathaway is structured and if the company is appropriate for individual retirement accounts.
  2. Investing

    What is the Importance of a Share's Class?

    The meaning of share classes varies, depending on the investment vehicle.
  3. Investing

    Is Berkshire Hathaway Stock Undervalued? (BRK-A)

    Find out why Berkshire Hathaway stock may be undervalued when the company has an overall growth business, something that should support a premium valuation.
  4. Investing

    What Will Become of Berkshire Hathaway Beyond Buffett?

    Warren Buffett, who has become almost synonymous with the term “investor,” remains robust, but at 83 is clearly somewhere in the fourth quarter of the game. What does that mean for Berkshire ...
  5. Managing Wealth

    How Warren Buffett made Berkshire Hathaway

    It would be easier to list the industries in which Berkshire Hathaway Inc. doesn’t turn a profit.
  6. Investing

    The ABCs of Mutual Fund Classes

    There are three main mutual fund classes, and each charges fees in a different way.
  7. Investing

    Always Bet On Berkshire Hathaway (And Here's Why)

    With its share price at an all-time high amid talk of a stock market correction, why would anyone buy Berkshire Hathaway shares?
  8. Investing

    What is an Asset Class?

    A group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same laws and regulations.
  9. Investing

    A Look At Berkshire Hathaway's Many Components

    Berkshire Hathaway has 59 wholly owned subsidiaries and owns big stakes in several huge companies. Just how do those pieces fit together?
  10. Investing

    Where Does Warren Buffett Keep His Money?

    Understand who Warren Buffett is and how he made most of his net worth. Learn about the main places and investment vehicles where Buffett keeps his money.
RELATED TERMS
  1. Share Class

    A designation applied to a specified type of security such as ...
  2. Classified Shares

    The separation of company equity into more than one class of ...
  3. Class A Shares

    A classification of common stock that may be accompanied by more ...
  4. Class Of Shares

    1. Types of listed company stock that are differentiated by the ...
  5. Dual Class Stock

    A dual class stock is the issuing of various types of shares ...
  6. A-Share

    An A-share is a share class offered in a family of multi-class ...
Hot Definitions
  1. Net Present Value - NPV

    Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows ...
  2. Return On Equity - ROE

    The amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability ...
  3. Bond

    A bond is a fixed income investment in which an investor loans money to an entity (corporate or governmental) that borrows ...
  4. Whole Life Insurance Policy

    A life insurance contract with level premiums that has both an insurance and an investment component. The insurance component ...
  5. Compound Annual Growth Rate - CAGR

    The Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment over a specified period of time longer ...
  6. Capital Asset Pricing Model - CAPM

    A model that describes the relationship between risk and expected return and that is used in the pricing of risky securities. ...
Trading Center