While perusing the extensive lists of stocks available on the Clarity, by Investec platform, you may notice that some shares are available as either Class A, Class B, or Class C options.
For example, DIY investors can choose between Alphabet Inc. Class A (GOOGL-NASQ) and Alphabet Inc. Class C (GOOG-NASQ); Fortress Real Estate Investments Limited Class A (FFA-JSE) and Fortress Real Estate Investments Limited Class B (FFB-JSE); and Under Armour, Inc. Class A (UAA-NASQ) and Under Armour, Inc. Class C (UA-NASQ) shares.
These are different classes of the same company’s stock, but with important distinctions.
Know your ABCs
Share classes are a way of assigning different rights to different stockholders. They can address issues such as voting authority, dividends and rights to the company’s assets and capital.
As such, Class A, B, and C shares differ in their availability, convertibility, and voting. One Class isn’t necessarily better than the other, as a company can structure each share and its characteristics of the share class to meet specific investor needs.
Understanding these differences is key to making informed investment decisions based on your personal goals.
Class A shares
Class A shares are typically a type of common stock that gives investors ownership in a company, along with a share of its profits.
Class A shares may confer more votes per share to the holder. This gives Class A shareholders more influence over big company decisions, like electing the board or approving mergers.
Because of this power, companies usually reserve Class A shares for founders, executives, or key company insiders, which means they are not always available publicly to DIY investors. This helps companies maintain control, especially during major events like takeovers.
Some Class A shares also come with the option to convert them into more common shares, potentially increasing the shareholder’s value in a sale. However, this means class A shares can cost more per share than Class B or Class C shares.
Class A shares can also vary depending on the company. They might be standard, tech-specific, or high-priced, so it’s important to read the details before investing.
Class B shares
Most DIY investors are well served with class B shares, especially when investing in well-established public companies. Class B shares are often more affordable for everyday investors and are easier to buy or sell on public markets.
However, they typically offer little to no voting rights, and investors who own class B shares sometimes receive smaller dividends or rank lower in payouts.
Class C shares
Class C shares are a type of common stock, just like Class A or B shares, but they usually come with no voting rights, which means holders do not get a say on company matters, such as electing board members.
That means you own a piece of the company and can generate a return from its growth, but you don’t get a say in company decisions.
These shares are often created so that founders or insiders can raise money from public investors without giving up control of the company. They are often cheaper than Class A shares, but investors can still receive dividends if the company pays them.
If you’re a long-term, passive investor who is mainly interested in a company’s growth and doesn’t care about voting, Class C shares can be a low-cost way to invest.
Which class is best?
Deciding which share class is best depends on you and your investing goals, as well as how a company structures their shares.
If a DIY investor wants some influence in company matters, Class A shares may offer that option, if they are traded publicly and are structured in that manner.
If you’re focused on growth or income and just want cost-effective exposure to stocks, Class B or Class C shares are typically better.
