Class A Shares
The term class A shares refers to common and preferred stock that offer their holders additional benefits, or different fees in the case of mutual funds. Class A shares normally have liquidation preference over all other shareholder classes.
Companies have the option of issuing different classes of common and preferred shares. Class A shares typically bestow additional rights on the holder. These rights can include preference with respect to dividend payments, voting rights, as well as during liquidation. For example, holders of class A shares may be entitled to the payment of dividends before holders of class B shares. They may also be granted voting rights with respect to the election of members of the company’s board of directors. Finally, holders of class A shares may be entitled to cash during liquidation before all other holders of common stock.
There are a number of reasons a company may issue different classes of stock, including offering insiders and company managers additional voting rights to defend against hostile takeovers. These shares may be issued to these individuals as part of the company’s incentive program.
Mutual funds also offer different classes of shares. For example, class A shares will typically carry a front load that ranges from 2.50% to 5.75% of the original investment. In exchange for paying a higher upfront fee, class A shares in a mutual fund will usually impose lower ongoing fees.