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CFA Level I · CFA Level I Exam · Equity Jurisdictions, Classes, and the Voting Process

An analyst compares a company whose ordinary shares carry one vote each with a company that has two share classes, where Class B shares carry ten votes each and are held by the founder. Relative to the first company, the second is most likely to:

The dual-class company most likely gives the founder control that exceeds the founder's economic ownership, because Class B shares carry ten votes each. This weakens the alignment of votes with capital and can raise conflict risk for minority shareholders, rather than reducing it.

  1. Agive the founder control that exceeds the founder's economic ownershipCorrect
  2. Balign voting power with economic ownership more closely
  3. Creduce the risk of conflicts between founders and minority shareholders

Explanation

Multiple voting classes let holders control votes disproportionate to their capital invested. This can entrench management and increase conflict risk with minority holders, which is the opposite of the other options.

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