B-Shares

B-Shares (also known as Class B Shares) are a type of common stock issued by a company that typically has different rights from another class of shares, most commonly A-Shares. The most frequent difference lies in voting rights. Companies often create dual-class share structures to allow founders, family members, or management to retain control over the company's direction even after selling a significant portion of the equity to the public. For example, a company might issue A-Shares with ten votes per share to insiders and B-Shares with only one vote per share (or sometimes no votes at all) to the public. This structure allows the company to raise capital in the public markets without diluting the founders' control. While voting rights are the primary distinction, differences can also exist in dividend payouts or claims on assets in a liquidation scenario. Famous companies like Google's parent, Alphabet Inc., and Berkshire Hathaway utilize a dual-class share structure.

The motivation behind issuing different share classes almost always boils down to one thing: control. By separating economic ownership from voting power, a select group can steer the company's long-term strategy without fear of being overruled by a fragmented and often short-term-oriented shareholder base.

Imagine you're a visionary founder who wants to pursue a long-term, unconventional strategy. You need to raise money to grow, but you're worried that new public investors might get nervous during a down quarter and vote to oust you or force a change in strategy. The solution? A dual-class share structure. This is precisely the model used by companies like Meta Platforms, where founder Mark Zuckerberg holds shares with superior voting power. This allows him to maintain control over the company's strategic decisions, even without owning a majority of the economic interest. The B-Shares (or the equivalent lower-voting class) are what the general public typically buys and sells on the stock exchange.

While voting power is the star of the show, other features can differentiate share classes. It's crucial for an investor to understand the specific rights attached to the shares they are buying. These can include:

• Dividend Rights: One class might receive a higher dividend than another.
• Liquidation Preference: In the event of a bankruptcy or sale, one class may have priority in getting their money back.
• Conversion Rights: Sometimes, one class of shares can be converted into another, often subject to specific conditions.

For a value investor, the existence of B-Shares presents both an opportunity and a risk. The key is to analyze why the structure exists and whether it serves or harms the long-term interests of common shareholders.

Often, B-Shares trade at a slight discount to their A-Share counterparts. The market prices in the inferior voting rights. For the average investor, whose individual vote is statistically meaningless anyway, this can be a great deal. You get to own a piece of the same underlying business—the same factories, brands, and cash flows—but at a lower price. The quintessential example is Berkshire Hathaway. Warren Buffett created B-Shares (BRK.B) to make ownership more accessible to the public, as the A-Shares (BRK.A) traded for tens of thousands of dollars. The B-Shares represent a fraction of the economic interest of an A-Share and have correspondingly fractional voting rights. For investors who want to partner with Buffett but don't have $500,000 to spare for a single A-Share, the B-Shares are the perfect vehicle. They provide the same exposure to Berkshire's brilliant capital allocation, which is what truly matters.

The primary risk of a dual-class structure is the potential for an agency problem. When management is insulated from the voting power of public shareholders, their accountability diminishes. This can lead to self-serving decisions, such as excessive executive compensation or pursuing pet projects that destroy shareholder value. When you buy shares with limited or no voting rights, you are placing enormous faith in the controlling shareholders. Your investment thesis must include a deep-seated trust in their competence and integrity. Ask yourself:

• Do the controlling shareholders have a long track record of creating value for all shareholders?
• Are their interests, despite their outsized voting power, generally aligned with yours?

If the answer is yes (as with Berkshire Hathaway), B-Shares can be a fantastic investment. If the answer is no, the structure is a major red flag, and it's probably best to stay away.

B-Shares are a common feature in the investment world, not an immediate sign of trouble. They can offer a savvy way to invest in a wonderful business at a slight discount. However, they are an explicit trade-off: you sacrifice influence for access and a potentially better price. Before buying, always do your homework. Read the company's prospectus and annual report to understand the precise rights you are—and are not—getting. Your decision should ultimately hinge on your assessment of the people in control.