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CFA Level I · CFA Level I Exam · Organizational Forms, Corporate Issuer Features, and Ownership

A company's founder holds shares carrying 60% of the votes but only 20% of the economic ownership through a dual-class structure. The risk most likely heightened by this structure is that the:

The main risk is that minority shareholders have limited influence over decisions affecting their returns. The founder controls 60% of votes while owning only 20% of the economics, so can act with weak accountability and bear only a small share of the costs of poor decisions.

  1. Afounder can bear the full cost of failed projects
  2. Bminority shareholders may have limited influence over decisions that affect their returnsCorrect
  3. Ccompany cannot raise additional equity from public investors

Explanation

Control exceeding economic interest lets the founder decide matters while bearing only 20% of the cost or benefit, so minority holders have little influence and may be exploited. Option A is wrong because the founder bears only a minority of the costs. Dual-class companies can still raise public equity.

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