Share Class – Meaning, Types, Features & Example

When a company issues shares, it may group them into different classes to assign varying rights and privileges to investors. These share classes affect voting power, dividend eligibility, and ownership control. This article explores what share classes are, why they exist, how they function, and the key types investors should know.

A share class is a category of stock that carries specific rights and conditions, distinguishing it from other classes issued by the same company. Companies often issue multiple classes to structure control, distribute income differently, or cater to different investor groups. Each share class can influence how decisions are made, how profits are shared, and who retains ownership control.

Purpose of Creating Share Classes

Share classes enable companies to tailor shareholder rights based on strategic goals. For example, founders may retain voting power through one class, while public investors access another class with limited voting rights but higher dividend claims. This approach balances capital raising with ownership retention.

Companies may issue various classes of shares based on their ownership structure and listing strategy. Below are common types:

Class A, Class B, and Class C Shares

These classifications are commonly used in global and occasionally in Indian markets. While the naming varies, the rights often differ in:

• Voting rights: Class A may carry one vote per share, Class B may carry more or less, and Class C may offer none.
  

• Dividend structure: Some classes receive priority in dividend payouts or benefit from fixed dividend rates.
  

• Liquidity and public trading: Certain classes may be listed, while others are held privately or by promoters.
  

Equity Shares vs Preference Shares

In India, equity shares represent standard ownership in a company. Shareholders can vote and receive variable dividends depending on profit declarations.

Preference shares, on the other hand, offer fixed dividends and take precedence over equity shares in dividend payments and capital return during company liquidation. Preference shareholders generally do not have voting rights, unless dividends remain unpaid for two consecutive years.

Mutual Fund Share Classes (when applicable)

While more common internationally, mutual funds may also issue different share classes that vary based on expense ratios, entry or exit loads, and minimum investment amounts. These distinctions, though less prevalent in Indian mutual funds, are relevant in global investment structures.

Each share class offers a different combination of rights and benefits. Here are the main aspects:

Voting Rights

Some shares carry voting rights that allow holders to influence corporate decisions during Annual General Meetings. Others may restrict this ability, especially when issued to public investors.

Dividend Eligibility

Companies may allocate varying dividend percentages across share classes. For instance, preference shareholders might receive dividends before equity shareholders, often at a fixed rate.

Transferability and Liquidity

Certain classes are freely tradable on stock exchanges, while others may be held privately by company founders or employees. Transfer restrictions can limit resale or change of ownership.

Many firms adopt dual-class structures to retain decision-making control. For instance, a company might issue Class A shares with one vote per share for public investors and Class B shares with ten votes per share to founders and promoters. This allows public participation without diluting key managerial control.

While not offering investment recommendations, it's useful to understand how share classes impact shareholder outcomes.

From an Investor Perspective

Share classes help investors align with their preferences—such as prioritising dividend income, preferring influence through voting rights, or seeking liquidity.

From a Company Perspective

Share classes enable businesses to attract diverse investors while safeguarding strategic interests. This flexibility supports long-term stability and planning.

Share classes serve as an essential mechanism for structuring ownership, voting power, and income distribution in a company. Understanding these distinctions is crucial for anyone evaluating corporate structures or planning to participate in the equity markets. While Class A, B, and preference shares may offer different benefits, their core purpose is to provide companies and shareholders with structured flexibility.

This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.