What Is a Class B Share and How Does It Differ

A Class B share is a type of stock that offers voting rights, but with some restrictions.

In the US, Class B shares are often used by companies like Alphabet and Microsoft, which have both issued Class B shares with 10 times the voting power of their Class A shares.

Class B shares typically have limited public trading and are often held by insiders, such as founders, executives, and early investors.

Class B shares are a type of classified share, which means they have different voting rights and ownership rights compared to other classes of common stock.

They often have limited voting power, which can be a deliberate design choice by the company to balance power with other stakeholders.

Class B shares typically have the same dividend rate as other classes of common stock, but the specifics can vary depending on the company's structure.

In some cases, Class B shares may have more restrictive transferability, limiting who can buy or sell them.

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Class B shares are not identical to Class A shares, just like how different models of the same car have varying features and prices.

They differ in their position in the capital stack, with Class A investors being paid first and offered a higher preferred return.

Class B investors, on the other hand, are paid what's left over after Class A investors have received their preferred return.

If the full preferred return isn't met, it accrues and is likely paid out upon disposition or a capital event.

Class B investors participate in the upside upon disposition or capital events, making their overall return higher over the life of the investment.

You can invest in both Class A and Class B, allowing you to have a strong ongoing cash flow and participate in the upside, like investing $75,000 as a Class A investor and $25,000 as a Class B investor.

The only difference between Viacom A and B shares is voting rights, with Viacom A providing voting rights and Viacom B not.

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The Class B shares of Berkshire Hathaway offer a lower price point compared to the Class A shares, making them more accessible to a wider range of investors.

A single Class A share can cost hundreds of thousands of dollars, which can be a significant barrier for many investors.

The price difference between the two classes of shares is the primary reason the Class B shares were created, making them more inclusive and available to a broader audience.

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Class B shares have different rights and priorities compared to Class A shares.

In most cases, Class B shares carry less voting rights than Class A shares. However, this is not always the case, and some companies may issue B-shares to provide more voting rights to shareholders.

Typically, Class B shares come with lower repayment priority in case of bankruptcy proceedings. This means that the company will repay Class A shareholders first, and then the B-share shareholders.

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Companies may issue different classes of common stocks to limit the controlling power of public shareholders. For example, a company may provide Class A shares to founders, executives, and directors, and issue B-shares to the common public.

Class B shares usually have lower dividend priority than Class A shares. This means that Class A shareholders are paid a dividend first, and then the dividend is distributed to the B-share shareholders.

Some companies offer more than two classes of shares, such as Class C and D shares, for various reasons.

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Class B shares are a type of mutual fund share that has no commission or sales load when buying the fund's shares.

However, investors pay a fee when selling the fund's shares, which may be waived if held for five years or longer.

This fee can be a significant consideration for investors, as it can eat into their returns over time.

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In fact, the fee for Class B shares can be waived if the investor converts them to Class A shares, which have a commission or sales load when buying.

Class B shares have higher 12B-1 and annual management fees than Class A shares, making them a more expensive option in the long run.

However, Class B shares do not have a load fee, meaning the entire purchase price of the shares is invested into the mutual fund.

Here are some examples of companies that have Class B shares:

These companies are just a few examples of the many that offer Class B shares as an investment option.

It's essential to do extensive research before choosing between Class A and Class B shares, as the right choice for you will depend on your individual financial goals and needs.

In this section, we'll break down the Return on Investment (ROI) for Class B investors. Class B investors receive a prorated 7% preferred return paid out monthly after Class A investors have received their prorated preferred return.

The preferred return is lower than what Class A investors receive, but Class B investors still participate in upside upon disposition or capital events. For our deals, Class B investors receive 70% of the profits up to a 13% IRR and 50% of the profits thereafter.

This means that Class B investors can earn a significant share of the profits, especially in deals that perform well. The Class B minimum investment for our deals is $50,000 for first-time investors and $25,000 for returning investors.

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The 12-1 fee is a common feature of Class B shares. It's a way for the company to maintain control and limit the voting power of Class B shareholders.

This fee is typically set at a rate of 12 times the Class A share price, hence the name 12-1 fee. This means that for every share of Class B stock, the company will pay 12 times the price of a Class A share.

Class A shareholders often hold a majority of the company's voting power, which can be a concern for Class B shareholders. The 12-1 fee is designed to offset this imbalance and give Class B shareholders more power.

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A dual class stock is a type of stock where a single company issues different levels of shares with distinct voting rights and dividend payments.

The concept of dual class stock is well-exemplified by Berkshire Hathaway, which has two share classes: Class A and Class B. Berkshire Hathaway's dual class stock structure was introduced to attract long-term, value-oriented investors.

In 1996, Warren Buffett introduced Class B shares to address the demand from smaller investors, offering a more affordable entry point. This move made Berkshire Hathaway's shares more accessible to a broader range of investors.

The Class B shares were designed to preserve the original Class A share structure, ensuring that the rights and privileges of Class A shareholders were maintained.

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