Loading the player...

What are 'Class B Shares'

Class B shares are a classification of common stock that may be accompanied by more or fewer voting rights than Class A shares. Although Class A shares are often thought to carry more voting rights than Class B shares, this is not always the case: Companies will sometimes try to disguise the disadvantages associated with owning shares with fewer voting rights by naming those shares "Class A" and those with more voting rights "Class B." A detailed description of a company's different classes of stock is included in the company's bylaws and charter.

Class B shares typically have lower dividend priority than Class A shares. However, different share classes do not usually affect an average investor’s share of the profits or benefits from the company’s overall success. Some companies offer more than two classes of shares (for instance, Class C and D) for various reasons. Sometimes, a company will offer a second class of shares that have a lower share price in order to attract individual investors as opposed to institutional shareholders - for instance, with Berkshire Hathaway's Class A shares (BRK.A) trading at around $285,000 and its Class B shares (BRK.B) at a more palatable $189.

BREAKING DOWN 'Class B Shares'

Voting Power of Share Classes

An investor should research details of a company’s share classes when considering investing in a firm with more than one class. For example, a private company deciding to go public typically issues a large number of common shares, but it may provide its founders, executives or other large stakeholders with a different class of common stock carrying multiple votes for each share. Increasing voting shares gives key company insiders greater control over voting rights, the company’s board of directors (BOD) and corporate actions. Because key insiders may maintain majority voting rights without owning more than half the outstanding shares, the insiders may defend the company against hostile takeovers. As long as large stakeholders owning greater voting shares are successfully running the business, individual investors need not be concerned.

Differences Between Class A and Class B Shares

In terms of mutual fund designations, commissioned mutual fund brokers typically recommend Class A shares to individual investors. The shares have a load, or commission, that investors must pay when buying the fund's shares. Investors purchasing large numbers of shares, or who have shares in other funds offered by the same mutual fund company, may receive discounts on the load. Class A shares may have a lower 12B-1 fee, or marketing and distribution fee, than other share classes.

In contrast, Class B mutual fund shares have no load fees. Investors purchasing Class B shares pay a fee when selling their shares. The fee may be waived when holding the shares five years or longer. In addition, Class B shares may convert to Class A shares if held long term. Although the absence of a load means the entire purchase price of the shares is invested into the mutual fund, rather than having a percentage subtracted upfront, Class B shares have higher 12B-1 and annual management fees than Class A shares.

RELATED TERMS
  1. Investor Shares

    Investor shares are mutual fund shares structured for investment ...
  2. Multiple Capital Structure

    Multiple capital structure is the classification of a company's ...
  3. Institutional Shares

    Institutional shares are a class of mutual fund shares available ...
  4. Alphabet Stock

    An alphabet stock is an equity share that is tied to a specific ...
  5. Load Fund

    Load funds charge fees of less than 1% in order to compensate ...
  6. Asset Class

    An asset class is a group of securities that exhibits similar ...
Related Articles
  1. Small Business

    How Zuckerberg Will Control Facebook Forever (FB, GOOG)

    Zuckerberg has pledged his wealth for charity, which includes his Facebook stock ownership. Here's how he will still control the Facebook business forever.
  2. Insights

    Is The Middle Class Really Disappearing?

    Find out exactly what "middle class" means and whether it's really getting rarer.
  3. Managing Wealth

    Top 3 Differences Between Business and First Class

    The price difference between a business class ticket and first class are hefty, but what are the differences in amenities? Is the expense worth it?
  4. Investing

    3 Benefits of Looking at Asset Classes Beyond Your Portfolio

    Discover three of the primary advantages for investors that can be obtained by diversifying their investment portfolio with different asset classes.
  5. Investing

    Value Traps: Bargain Hunters Beware!

    Find out how to avoid getting sucked in by a deceptively inexpensive stock.
  6. Managing Wealth

    The Best Time to Buy First Class Airline Tickets

    Book at least a week in advance and try these less-well-known routes to the least pricey first class seats.
  7. Investing

    Under Armour Issues Class C Shares (UA)

    This move by the Maryland-based company ensures that going forward, founder and CEO Kevin Plank maintains control of the company he founded in 1996.
  8. Trading

    Why the American Middle Class is Shrinking

    Discover why the American middle class is shrinking and why that is probably good thing, although the Fed might be funneling growth to the ultra-wealthy.
  9. Investing

    Snap's ETF Future Is Cloudy

    Snap's future in ETFs became trickier to forecast thanks to an important S&P announcement.
  10. Insights

    Breaking Through The Middle Class

    While there is no easy way to the top, understanding some basic economics will help you you move up the economic ladder.
RELATED FAQS
  1. 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 >>
  2. The difference between Berkshire Hathaway's Class A and Class B shares

    Price is the primary difference between Berkshire Hathaway's Class A stock and Class B stock, but there are other distinctions. ... Read Answer >>
Trading Center