Dual Class Stock

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Definition of 'Dual Class Stock'

Dual-class stock is a type of equity security that has two classes of stock, with different voting rights. The most common type of dual-class stock is one in which the founders or controlling shareholders hold a class of stock with super-voting rights, which gives them more voting power than the other class of stock. This can allow the founders or controlling shareholders to maintain control of the company even if they own a minority of the shares.

There are a number of reasons why companies might issue dual-class stock. One reason is to give the founders or controlling shareholders more control over the company's direction. Another reason is to attract investors who are looking for a company with a strong management team. Dual-class stock can also be used to reduce the cost of capital for a company, as it can be issued at a lower price than common stock.

There are also a number of risks associated with dual-class stock. One risk is that the founders or controlling shareholders could use their super-voting rights to make decisions that are not in the best interests of the other shareholders. Another risk is that dual-class stock can make it difficult for a company to be acquired, as the founders or controlling shareholders may be able to block a takeover attempt.

Overall, dual-class stock can be a useful tool for companies, but it is important to understand the risks involved before issuing this type of security.

Here are some additional details about dual-class stock:

* The two classes of stock are typically called Class A and Class B stock. Class A stock typically has one vote per share, while Class B stock has more votes per share.
* The number of votes per share for Class B stock can vary, but it is typically much higher than the number of votes per share for Class A stock.
* The founders or controlling shareholders typically hold Class B stock, while the other shareholders hold Class A stock.
* Dual-class stock can be issued when a company is first formed or through a subsequent stock split.
* Dual-class stock is often used by technology companies, such as Google and Facebook.

It is important to note that dual-class stock is not the same as preferred stock. Preferred stock is a type of equity security that has certain advantages over common stock, such as a higher dividend yield and priority over common stock in the event of a liquidation. However, preferred stock does not have voting rights.

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