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CFA Level I · CFA Level I Exam · Investors and Other Stakeholders

A company has a dual-class share structure in which founders hold shares with ten votes each and public investors hold shares with one vote each. Compared with a single-class structure, the principal governance risk to minority shareholders is most likely:

The main risk is a divergence between voting control and economic ownership. Founders with superior voting shares can control decisions and resist takeovers or oversight while bearing only a small share of the economic consequences, so minority shareholders have little influence over management.

  1. Agreater liquidity in the public shares
  2. Ba divergence between voting control and economic ownershipCorrect
  3. Ca higher statutory dividend payment requirement

Explanation

Dual-class structures give insiders voting control exceeding their economic stake, so they can pursue their own interests at the expense of minority holders. Liquidity and mandatory dividends are not features of such structures.

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