What is 'Dual-Class Ownership'

Dual-class ownership is a type of common stock offering in which companies issue shares that have differing rights. In a dual-class ownership structure, the company can issue two classes of shares, Class A and Class B. These classes may have different voting rights, but they represent the same underlying ownership in the company.

BREAKING DOWN 'Dual-Class Ownership'

Often companies that are transitioning from being private to becoming a public companies may use a dual-class ownership structure to maintain control over the company. For example, when Google went public, it issued Class B shares that had no voting rights to ensure that the founders and executives still had control of the company. Google, now trading publicly as Alphabet, has since altered its share class structure with Class B shares having 10 times the voting power as Class A.

Approximately eight percent of U.S. companies in the Russell 3000 Index had a dual or multiple share class structure as of March 2017.

Dual-class or supermajority ownership structures remain a tool in initial public offerings where an entrepreneur or company founder or family wishes to raise capital through the public markets without ceding control of the enterprise. For listing purposes, the major stock exchanges require such dual-class structures be put in place at the time of the IPO.

An established, blue chip company can also elect to change from a single to a dual-class stock structure to provide greater access to investors. Warren Buffett’s Berkshire Hathaway is the most well-known example of this practice. The company’s Class A shares have historically traded at such a high valuation that most investors can not afford to purchase them. By issuing Class B shares at a fraction of the price of the A shares and later conducting a 50-to-1 stock split, Berkshire stock has become much more accessible to retail investors.  

Pros and Cons of Dual-Class Ownership

Ordinary class shares, those with fewer or no voting rights, typically trade at a price discount to stocks that only offer a single class of shares. Governance experts say this discount tends to go away during strongly positive markets but that it could be an impediment for companies seeking to issue stock during difficult equity market conditions.

Such a structure can provide added protection in the case of a hostile takeover attempt as the Class A shareholders maintain more control relative to outside shareholders. However, the existence of a dual-class structure can make if difficult to raise additional capital through the equity or debt markets if such a structure is no longer viewed favorably by the investment community.

  1. Share Class

    Share class refers to different types of shares a company issues ...
  2. Class B Shares

    Class B Shares are a classification of common stock that may ...
  3. Multiple Capital Structure

    Multiple capital structure is the classification of a company's ...
  4. A

    A is an alphanumeric symbol indicating Class A shares on a security. ...
  5. A-Share

    An A-share is a share class offered in a family of multi-class ...
  6. Asset Class

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

    Nasdaq Goes to Bat for Company Founders

    Jeff Thomas, Nasdaq's head of West Coast operations, outlines why the exchange is making a case for startups.
  2. Personal Finance

    Which Income Class Are You?

    Which income class do you belong to – and what defines the different classes?
  3. Investing

    How to use insider and institutional ownership

    Learn why insider and institution stock ownership reveal much information about the stock. Understand what to consider when making well-informed investment decisions.
  4. Insights

    Is The Middle Class Really Disappearing?

    Find out exactly what "middle class" means and whether it's really getting rarer.
  5. Investing

    Snap's ETF Future Is Cloudy

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

    If You Had Invested Right After Google's IPO

    Find out more about how much money you would have if you invested $1,000 in Google Incorporated right after its initial public offering date.
  7. Investing

    4 Stocks With Low Volume And High Returns

    Roger Ibbotson, the Yale finance professor, believes low volume stocks outperform high volume stocks by as much as 12% annually.
  8. Insights

    Is the U.S. Economy Really Improving?

    The U.S. economy might be improving for some, but not for the majority. Here's why.
  9. Investing

    Zuckerberg a Dictator at Facebook: CalSTRS CIO

    The executive of CalSTRS is concerned about the corporate shareholding pattern through which absolute powers are vested in the founder and CEO of Facebook
  10. Investing

    2016's Most Promising Asset Classes

    Find out which asset classes are considered to be the most promising for generating portfolio returns and reducing volatility in 2016.
  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 >>
Trading Center