CFA Level I · CFA Level I Exam · Equity Jurisdictions, Classes, and the Voting Process
A company has two classes of common shares: Class A shares carry one vote each, while Class B shares carry ten votes each and are held by the founding family. Which outcome is most likely a consequence of this structure for holders of Class A shares?
Class A holders' voting power is most likely diluted relative to their economic interest. Class B shares carry ten votes each, so the founding family controls outcomes beyond its share of equity, while Class A holders gain no extra dividend claim or board control.
- ATheir voting power is diluted relative to their economic interestCorrect
- BThey receive a higher claim on dividends per share
- CThey gain the right to appoint a majority of the board
Explanation
Differential voting structures give the high-vote class control exceeding its economic ownership, so Class A voting power is less than its share of the equity. The structure says nothing about higher dividends for Class A, and Class B, not Class A, would dominate board elections.
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