There are shares that have different rights for some companies. Dual-class shares are the shares that have greater voting rights. These shares give founders and top executives control of the company, even though they own fewer shares. These shares give them more power for a lesser number of stock. These shares can have different voting rights, payouts and other features.
Since its introduction, the dual-class share structure is a hot topic. Let's take a look at its advantages and drawbacks.
1. Owner, founders and the top management of the company have control. This control is essential to safeguard the company against the short-term market pressures.
2. This allows the management to concentrate on long-term strategy and growth.
3. It can have a negative impact on the overall performance of the business.
4. The company doesn't have the same short-term financial focus as investors.
5. Outsourcing can help companies save money on their compensation benefits.
6. Dual shares are used to control the ownership of small-cap startups and other companies.
7. The shares are usually not tradeable. The company is able to rely on its loyal investors.
1. Dual-class shares have the most obvious problem: they are fundamentally unfair and tend to create a small class of shareholders.
2. Manager who holds majority stock and remaining shareholders have discrepancies that reduce accountability
3. Management can make poor decisions and only a few consequences.
4. The structure can be weakened by excessive control from the inside
5. This type of structure may be more debt-laden than one-class shares.
6. This structure is difficult to convert into a single-class structure
7. The company is less motivated than others to raise funds.
Dual-class shares are issued when a company doesn't want to lose control, but still wants public markets for raising finance. To protect both founders and shareholders, it must strike a delicate balance.