Class A shares
Class A is the higher level of classified stock. Classified stocks are basically common stocks which have been divided into two tiers, with each type holding its own set of conditions and privileges.
Class A shares are not sold to the general public. These are not used for trading and are commonly held by management. They usually carry with them more voting rights than Class B stocks, unless the company labels certain stocks with limited voting rights as Class A, and some stocks with more voting rights as Class B.
Class B stock, which is more common, does not give the holder as many privileges as those holding Class A stocks.
One of the biggest differences is the absence or limitation of voting rights, depending on how the company structures its charter and manages the labeling of its stocks. Also, holders of Class B stocks are likely to have a lower rate of return than their Class A counterparts.
However, for many individuals and investors, Class B stocks may be preferable because they also carry with them lower risks. Also, some investors may be interested in receiving returns without having to do actual work or participate in decision-making.
Companies that offer stock ownership options to their employees will most likely offer Class B shares to regular employees and middle management officers. Class A shares may be reserved for high-level executives.
The classification of stocks may help management strategize better on achieving the company’s objectives. This also helps companies guard themselves against effects caused by changes in the stock market.