Class A vs Class C Stock (2024)

Hello

I am curious about the differences between Class A vs Class C stock purchases. Per Investopedia Class A shares typically have more voting rights and are often paid first when it comes to dividends while Class C shares don't have any voting powers.

Specifically, I am asking the question with respect to GOOG vs GOOGL, but the broader question regarding Class A vs Class C is still applicable no matter the company. As someone who is not a day trader and is primarily interested in purchasing stocks and holding for the long haul (>5yrs), which class of stock is typically best and why? Why would someone purchase Class A vs Class C stock? Are there specific risks to one class of stock vs another? Do the risks change for Class A vs Class C stock if you're referring to large/mega cap stocks vs small/micro cap stocks (irrespective of the broader risks in small/micro stocks in general)? If you were considering purchasing an individual stock for a retirement account (e.g. Roth IRA), which class of stock would be better and why?

While the majority of my (admittedly small, <50k) portfolio is comprised of ETFs to minimize risk, I do occasionally purchase smaller quantities of individual stocks and am interested in better understanding the specifics of these stocks.

All thoughts and comments are appreciated!

Class A shares usually allow for the founders to maintain control of voting (with a greater than 50% voting share) and therefore minority shareholder would not be able to dictate any changes to the way the corporation is run.

Class C shares usually have no voting rights and therefore are used when a corporation wants to add shares without reducing voting control of the founders (they would add shares for share based compensation or the acquisition of other corporations.

Note: You need to look at each company that has a dual share class individually as bylaws can be set up differently for each. The above Class A versus Class C rule is common but not absolute. Some are convertible into the other eliminating any arbitrage.

Retail investors should usually buy the cheaper of the two (usually the class C shares ) , as non voting shares have a voting discount , however they have the same economic interest - same access to cash flow, dividends , price if sold.

GOOGL (Class A - voting) and GOOG (class C) behave a little difference as both are very large weightings in the S&P 500 and which one sells cheaper can change by numerous demand factors. (Including company buybacks and trading volume). It is actually confusing why the voting shares (GOOGL) sell sometimes at a slight discount.

Note: Many companies will have way more non voting shares than founder voting shares but in Google's case they did it as a stock split and therefore the shares outstanding are close to each other. [Google also has Class B shares which are only owned by the founders]

Thanks Torino for the response! Sounds like for my purposes of buy and hold for the long haul Class C stock is generally the way to go. Also sounds like that with regards to Google specifically it doesn't much matter whether the purchase is A or C stock as both are about the same cost and there is no appreciable, as you put it, voting discount.

More generally I am now curious... why have different classes of stock at all? Okay, so different classes of stock have some different rights within the company. But do market forces affect the different classes of stock in different ways? E.g. You noted with Google Class B stock is owned only by the company's founders. If there is a hypothetical scandal affecting the upper echelons of a company, in this case Google, would that potentially insulate to some degree retail investor Class C stock from significant dips in stock price and only/mostly affect the Class B stock owned by the bigwigs?

gpttx wrote: ↑Thu Jun 15, 2023 1:48 pmThanks Torino for the response! Sounds like for my purposes of buy and hold for the long haul Class C stock is generally the way to go. Also sounds like that with regards to Google specifically it doesn't much matter whether the purchase is A or C stock as both are about the same cost and there is no appreciable, as you put it, voting discount.

More generally I am now curious... why have different classes of stock at all? Okay, so different classes of stock have some different rights within the company. But do market forces affect the different classes of stock in different ways? E.g. You noted with Google Class B stock is owned only by the company's founders. If there is a hypothetical scandal affecting the upper echelons of a company, in this case Google, would that potentially insulate to some degree retail investor Class C stock from significant dips in stock price and only/mostly affect the Class B stock owned by the bigwigs?

No. It just keeps the founders from having to listen to their stockholders. You need a 10:1 rebellion to force the company to act.

exodusNH wrote: ↑Thu Jun 15, 2023 1:53 pm

gpttx wrote: ↑Thu Jun 15, 2023 1:48 pmThanks Torino for the response! Sounds like for my purposes of buy and hold for the long haul Class C stock is generally the way to go. Also sounds like that with regards to Google specifically it doesn't much matter whether the purchase is A or C stock as both are about the same cost and there is no appreciable, as you put it, voting discount.

More generally I am now curious... why have different classes of stock at all? Okay, so different classes of stock have some different rights within the company. But do market forces affect the different classes of stock in different ways? E.g. You noted with Google Class B stock is owned only by the company's founders. If there is a hypothetical scandal affecting the upper echelons of a company, in this case Google, would that potentially insulate to some degree retail investor Class C stock from significant dips in stock price and only/mostly affect the Class B stock owned by the bigwigs?

No. It just keeps the founders from having to listen to their stockholders. You need a 10:1 rebellion to force the company to act.

So why not only have one class of stock and, for the sake of argument, the founders all split a billion shares total while the general public only has access to a million shares total? That's a 1000:1 ratio, with this example no one in the public will ever have any leverage to force the company to act on anything.

gpttx wrote: ↑Thu Jun 15, 2023 1:59 pm

exodusNH wrote: ↑Thu Jun 15, 2023 1:53 pm

gpttx wrote: ↑Thu Jun 15, 2023 1:48 pmThanks Torino for the response! Sounds like for my purposes of buy and hold for the long haul Class C stock is generally the way to go. Also sounds like that with regards to Google specifically it doesn't much matter whether the purchase is A or C stock as both are about the same cost and there is no appreciable, as you put it, voting discount.

More generally I am now curious... why have different classes of stock at all? Okay, so different classes of stock have some different rights within the company. But do market forces affect the different classes of stock in different ways? E.g. You noted with Google Class B stock is owned only by the company's founders. If there is a hypothetical scandal affecting the upper echelons of a company, in this case Google, would that potentially insulate to some degree retail investor Class C stock from significant dips in stock price and only/mostly affect the Class B stock owned by the bigwigs?

No. It just keeps the founders from having to listen to their stockholders. You need a 10:1 rebellion to force the company to act.

So why not only have one class of stock and, for the sake of argument, the founders all split a billion shares total while the general public only has access to a million shares total? That's a 1000:1 ratio, with this example no one in the public will ever have any leverage to force the company to act on anything.

The class A shares might have a preferred claim on assets in the event of bankruptcy, while the B shares have more voting power.

Other than that, I don't know. I buy ETFs and mutual funds. I don't pay attention to the specifics, as a) there's nothing I can do about it and b) such analysis would take time away from stuff that I enjoy.

gpttx wrote: ↑Thu Jun 15, 2023 1:59 pm

exodusNH wrote: ↑Thu Jun 15, 2023 1:53 pm

gpttx wrote: ↑Thu Jun 15, 2023 1:48 pmThanks Torino for the response! Sounds like for my purposes of buy and hold for the long haul Class C stock is generally the way to go. Also sounds like that with regards to Google specifically it doesn't much matter whether the purchase is A or C stock as both are about the same cost and there is no appreciable, as you put it, voting discount.

More generally I am now curious... why have different classes of stock at all? Okay, so different classes of stock have some different rights within the company. But do market forces affect the different classes of stock in different ways? E.g. You noted with Google Class B stock is owned only by the company's founders. If there is a hypothetical scandal affecting the upper echelons of a company, in this case Google, would that potentially insulate to some degree retail investor Class C stock from significant dips in stock price and only/mostly affect the Class B stock owned by the bigwigs?

No. It just keeps the founders from having to listen to their stockholders. You need a 10:1 rebellion to force the company to act.

See Also

Share Classes & Sales Charge FAQ

So why not only have one class of stock and, for the sake of argument, the founders all split a billion shares total while the general public only has access to a million shares total? That's a 1000:1 ratio, with this example no one in the public will ever have any leverage to force the company to act on anything.

A better question would be why would you want to structure it that way if you can give yourself special shares that accomplish the same thing at a fraction of the total ownership %?

If I can keep control of my company by controlling 10% of the total shares instead of 50% of the shares, that's a net benefit to me. I can use that remaining 40% ownership share to do anything I want instead of having to keep it locked up in the company for control purposes.

jbowman wrote: ↑Thu Jun 15, 2023 2:14 pm

gpttx wrote: ↑Thu Jun 15, 2023 1:59 pm

exodusNH wrote: ↑Thu Jun 15, 2023 1:53 pm

gpttx wrote: ↑Thu Jun 15, 2023 1:48 pmThanks Torino for the response! Sounds like for my purposes of buy and hold for the long haul Class C stock is generally the way to go. Also sounds like that with regards to Google specifically it doesn't much matter whether the purchase is A or C stock as both are about the same cost and there is no appreciable, as you put it, voting discount.

More generally I am now curious... why have different classes of stock at all? Okay, so different classes of stock have some different rights within the company. But do market forces affect the different classes of stock in different ways? E.g. You noted with Google Class B stock is owned only by the company's founders. If there is a hypothetical scandal affecting the upper echelons of a company, in this case Google, would that potentially insulate to some degree retail investor Class C stock from significant dips in stock price and only/mostly affect the Class B stock owned by the bigwigs?

No. It just keeps the founders from having to listen to their stockholders. You need a 10:1 rebellion to force the company to act.

So why not only have one class of stock and, for the sake of argument, the founders all split a billion shares total while the general public only has access to a million shares total? That's a 1000:1 ratio, with this example no one in the public will ever have any leverage to force the company to act on anything.

A better question would be why would you want to structure it that way if you can give yourself special shares that accomplish the same thing at a fraction of the total ownership %?

If I can keep control of my company by controlling 10% of the total shares instead of 50% of the shares, that's a net benefit to me. I can use that remaining 40% ownership share to do anything I want instead of having to keep it locked up in the company for control purposes.

So aside from the previously stated voting rights vs no voting rights, all shares are not equal. Google's Class B shares are only for it's founders, but Class A shares also have voting rights. Ok, so I now understand the value of having some shares that offer the ability to allow people to vote and some shares that don't. Now, what separates Google's Class B shares from the also-voting Class A shares? As an aside, I can't even find a stock value price for Class B shares online after a quick search, if market forces don't set that price, what does?

gpttx wrote: ↑Thu Jun 15, 2023 2:35 pm

jbowman wrote: ↑Thu Jun 15, 2023 2:14 pm

gpttx wrote: ↑Thu Jun 15, 2023 1:59 pm

exodusNH wrote: ↑Thu Jun 15, 2023 1:53 pm

gpttx wrote: ↑Thu Jun 15, 2023 1:48 pmThanks Torino for the response! Sounds like for my purposes of buy and hold for the long haul Class C stock is generally the way to go. Also sounds like that with regards to Google specifically it doesn't much matter whether the purchase is A or C stock as both are about the same cost and there is no appreciable, as you put it, voting discount.

More generally I am now curious... why have different classes of stock at all? Okay, so different classes of stock have some different rights within the company. But do market forces affect the different classes of stock in different ways? E.g. You noted with Google Class B stock is owned only by the company's founders. If there is a hypothetical scandal affecting the upper echelons of a company, in this case Google, would that potentially insulate to some degree retail investor Class C stock from significant dips in stock price and only/mostly affect the Class B stock owned by the bigwigs?

No. It just keeps the founders from having to listen to their stockholders. You need a 10:1 rebellion to force the company to act.

So why not only have one class of stock and, for the sake of argument, the founders all split a billion shares total while the general public only has access to a million shares total? That's a 1000:1 ratio, with this example no one in the public will ever have any leverage to force the company to act on anything.

A better question would be why would you want to structure it that way if you can give yourself special shares that accomplish the same thing at a fraction of the total ownership %?

If I can keep control of my company by controlling 10% of the total shares instead of 50% of the shares, that's a net benefit to me. I can use that remaining 40% ownership share to do anything I want instead of having to keep it locked up in the company for control purposes.

So aside from the previously stated voting rights vs no voting rights, all shares are not equal. Google's Class B shares are only for it's founders, but Class A shares also have voting rights. Ok, so I now understand the value of having some shares that offer the ability to allow people to vote and some shares that don't. Now, what separates Google's Class B shares from the also-voting Class A shares? As an aside, I can't even find a stock value price for Class B shares online after a quick search, if market forces don't set that price, what does?

You can't buy the class B shares.

They have 10:1 voting power. 85% of the class B stock is owned by Larry and Sergey, giving them 51.5% of the voting power.

For Google, the approximate share class amounts are

A Shares: 5941 mm (1 vote) = 5941 mm votes
B Shares: 882mm (10 votes per share) = 8820 mm votes (not traded and owned by the founders)
C Shares: 5974 mm (No votes)

All these shares have the same economic interest to the companies cash flow (although Google can prioritize share buybacks between A and C how they desire)

If they had just decided to split the A shares, doubling them to 12,000 mm , they would cause the founders (B shares) voting to dip below 50% and thus they would lose absolute control.

As you said above If the founders also owned a majority of A shares (lets say 50-75%) they would still maintain majority control , be able to split the shares (with just A shares) and not need to create a new C share class - but creating the C class allows the founders to sell shares (either A or C) without touching their B shares.

In order to invest in a founder controlled company, like Google or Facebook, you have to understand and accept that what they do with the company is up to them ,as long as they maintain their absolute control.

The only option investors have, if they disagree with the founder, is to sell their shares and walk away. Employees paid in stock could also walk draining workforce talent. [ This is part of what happened with Facebook and Mark Zuckerberg - investors did not like how he was using cash to fund the metaverse, they could not tell him to stop, so they started selling and employees could have been next if they believed their share based compensation was not worth enough to keep them around]