Classified stock definition
/What is Classified Stock?
Classified stock is a type of common stock that has special privileges, such as enhanced voting rights or dividend rights. The main differentiator is that certain types of classified stock have a larger number of votes per share. Company founders use these share holdings to maintain control over their businesses even after they have sold a large portion of the outstanding shares to other investors.
There may be several types of classified stock, such as Class A or Class B stock. The charter and bylaws of a corporation contain the specific privileges accorded to each type of stock. When classified stock is present, a company is said to have a complex capital structure.
Example of Classified Stock
For an example of classified stock, Alphabet Inc. (Google's parent company), has multiple classes of common stock. They are as follows:
Class A stock, 1 vote per share, held by public investors.
Class B stock, 10 votes per share, held by founders and insiders.
Class C stock, no voting rights, held by public investors.
Investors seeking control and voting power might prefer Class A shares, while those primarily interested in economic benefits may opt for Class C shares.
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FAQs
Are There Regulatory Limits on Issuing Classified Stock?
Regulatory limits may apply when issuing classified stock, depending on the jurisdiction and the company’s exchange listing requirements. Many stock exchanges impose rules to protect minority shareholders, particularly when classes have unequal voting rights. Corporate statutes also require clear disclosure of rights, preferences, and restrictions in the articles of incorporation before the classes can be issued.