How Many Classes of Shares Do I Have?
All corporations will have at least one class of shares: common stock. Common stock is the most basic class of shares, with one share giving you one vote for important matters such as selling the company or removing management, and the right to a certain percentage of dividends and proceeds from the sale of the company.
A C-corporation can also issue shares with special rights attached to them, and there are many reasons to do so. For example, founders can hold shares with special voting rights so that they retain greater control of the company, and investors can hold special dividend or liquidation rights so that they get first dibs on a certain amount of dividends or the proceeds from the sale of the company. Each set of shares with unique rights is a class of shares, and the rights associated with each class of shares require in-depth analysis and financial modelling to understand how they affect the value for the common stock.
A couple of examples:
- If one of your founders holds a special voting share, all other shares are common stock, and you haven’t issued any other shares, then you have two share classes. They will probably be named something like “Class A” and “Class B”
- If you have raised two rounds of venture capital funding, in each round you issued preference shares, and there are no other share types issued, then you have three share classes. They will probably be named something like “Class A”, “Series A Preference”, and “Series B Preference”.
To learn more about share classes see Classes of Common Stock.
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