Class A Shares

Class A shares are a type of common stock that, in a dual-class share structure, typically carry enhanced voting rights compared to other classes of shares (like Class B or Class C). Imagine a company's ownership is a giant pizza. Each slice represents a share, giving the owner a claim on the company's profits. Now, imagine some of those slices (Class A) come with a “super-vote” that counts for ten votes when deciding who runs the pizzeria, while other slices (Class B) only get one vote. Both slices might be the same size, meaning they represent the same economic interest in the company's profits, but the Class A slice gives its owner much more control over the company's decisions. This structure allows a small group of insiders, often the company's founders or their family, to maintain control over the Board of Directors and the company's strategic direction, even if they own a minority of the total shares.

At first glance, giving some shareholders more power than others might seem unfair. Why not just have one share, one vote? The primary reason for creating multiple share classes is control. It’s a mechanism for founders to have their cake and eat it too: they can raise capital from the public market by selling shares without surrendering control of the company they built.

When a private company decides to go public through an initial public offering (IPO), the founders often face a dilemma. Selling a large chunk of their company to the public could mean ceding control to thousands of new, anonymous shareholders who might prioritize short-term profits over the founder's long-term vision. A dual-class structure solves this. The founders and key insiders hold the super-voting Class A shares, while the public is offered the limited-voting Class B shares. This ensures that the original visionaries can continue to steer the ship, making bold, long-term bets without the constant fear of a hostile takeover or being voted out by activist investors. Famous tech giants like Alphabet Inc. (Google) and Meta Platforms (Facebook), as well as older companies like Ford Motor Company, have used this structure to protect their founding family's or founder's influence for decades.

As an ordinary investor, you'll most likely be offered the shares with fewer or no voting rights. The trade-off is this:

• The Upside: You get to invest alongside a visionary founder who has significant skin in the game. The idea is that a brilliant, motivated founder (like Mark Zuckerberg or the late Steve Jobs) is the company's greatest asset, and giving them unwavering control allows them to execute their long-term strategy, ultimately benefiting all shareholders.
• The Downside: You have virtually no say in how the company is run. This creates a significant corporate governance risk. If management becomes complacent, makes poor decisions, or starts prioritizing their own perks over shareholder value, there is very little that minority shareholders can do about it. You are putting immense faith in the competence and integrity of the controlling group.

Value investors are naturally wary of situations where they have little power to influence change. The philosophy, championed by Benjamin Graham, emphasizes buying businesses with a margin of safety and holding management accountable. A dual-class structure can sometimes run counter to these principles.

Ironically, Warren Buffett's own Berkshire Hathaway has a famous dual-class structure.

• Berkshire Hathaway Class A (BRK.A): The original, super-expensive shares with full voting rights.
• Berkshire Hathaway Class B (BRK.B): Created to be more accessible to smaller investors. Each B share has 1/1,500th of the economic rights and 1/10,000th of the voting rights of an A share.

However, Buffett's use of this structure is often seen as an exception that proves the rule. It was designed to prevent investment managers from creating derivative products that mimicked Berkshire, not to entrench Buffett's own power indefinitely. Generally, value investors view dual-class companies with skepticism. The concern is management entrenchment—a situation where a poorly performing management team cannot be removed because they control the votes, turning the company into a personal fiefdom at the expense of outside investors.

A dual-class structure is not an automatic “avoid.” Instead, it requires an extra layer of due diligence. Is the controlling shareholder a genius building an impenetrable competitive moat, or are they a monarch locking minority shareholders in a dungeon with no escape? Before investing in a company with multiple share classes, a prudent value investor should ask:

• Who is in control? Do they have a long track record of exceptional capital allocation and integrity?
• Are their interests aligned with mine? Do they own a significant economic stake (not just voting control), meaning they profit when all shareholders profit? Read the company's proxy statement carefully.
• Is there a “sunset” clause? Some modern IPOs include provisions that collapse the dual-class structure after a certain period or upon the founder's departure. This is a shareholder-friendly feature.
• What is the price difference? Sometimes, the limited-voting shares trade at a discount to the super-voting shares. Does this discount adequately compensate you for the lack of control?

Ultimately, investing in a company with Class A shares is a bet on the person or family in the driver's seat. If you believe they are exceptional, it can be a wonderful ride. If not, you may be just a passenger with no say in the destination.