The difference between Class A shares and other common shares of a company’s stock is usually the amount of voting rights assigned. The majority of all stocks issued are common stocks. Common shares are an ownership interest in a company and entitle shareholders to a portion of profits earned. Investors in common shares are usually given at least one vote for each share they hold. These votes are used to elect board members and influence company decisions. If a company falls into bankruptcy and must liquidate, common stock shareholders are the last to be paid after creditors, bondholders and preferred shareholders.
Classes of Shares
Theoretically, a company can create any number of classes of shares of common stock. The reason for varying classes is a company's desire for voting power to remain with a certain group of people. When more than one class of stock is offered, companies traditionally designate them as Class A and Class B, with Class A shares carrying more voting rights than Class B shares. Class A shares may offer 10 voting rights per stock held, while class B shares offer only one. This is not always the case and depends entirely on how the company decides to structure its stock.
Investors should research how a company classes its shares before purchasing stock to best determine how they wish to invest in the company. Setting the issue of voting rights aside, different classes of common stock almost always carry the same equity interest in a company and, thus, identical rights to share in company profits. For some investors, the amount of voting shares accorded to investors may be of little concern, as long as the investors believe those with the most voting power are making good decisions, leading to efficient operation of the company and steadily increasing return on equity, or ROE.
Different classes of common stock are a separate distinction from that between common and preferred stock. Preferred shares are a different type of asset, one that offers its holders priority when it comes to dividend payments or in the event of liquidation.