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adlin adlin
 
M$5 December 20, 2008 12:45 AM

Dual Class of Stock - Good idea? How to Structure?

It is argued by some entrepreneurs that having a special class of stock for founders is a good idea long term for everyone. Firstly do you think this is true? If so what is the best way to structure a dual class of stock to protect founders control long term whilst still protecting the interests of shareholders.
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williamwac... williamwac...
 
 December 20, 2008 01:03 AM
If you are just curious, this is fine. It is frequently done with some combination of preferred stock and another class or some times two classes of common with some classes having less or no voting rights.

See Berkshire Hathaway. Their B class stock brk.b is equal to a small fraction of the ordinary ( Class A) common stock but has no voting privilege.
on most sites you will enter the tickers like this brk.a and brk.b
Note the period.

If you are really going to do it. You need a securities attorney and a CPA. Better yet A securities board certified attorney who also has a CPA license.
Source(s):
http://moneycentral.msn.com/ownership?Symbol=BRK%2eB

http://moneycentral.msn.com/ownership?Symbol=BRK%2eB

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adlin adlin
 
December 20, 2008 03:26 AM
This is a great answer because it addressed the specific nature of the question I asked from several angles and with reference material.

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mskadu mskadu
 
December 20, 2008 01:06 AM
The most common way to protect the founders control is to provide it with more votes per share. The ordinary traded stock be kept at 1 vote per share.
Source(s):
http://stocks.about.com/od/understandingstocks/f/Stockfaqclasses.htm


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adlin adlin
 
December 20, 2008 03:24 AM
Thank you for this answer.

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startup cf... startup cf...
 
December 20, 2008 01:19 AM
I deal mainly with venture-capital-backed companies and angel-financed companies hoping to become venture-backed.

The typical financing arrangement is for founders AND employees (through stock options or restricted stock grants) to hold common stock. The investors hold preferred stock convertible into common at an appropriate time--like right before an IPO or acquisition.

You are probably, however, speaking of separate common stock with super voting privileges. This is not a good/bad decision. It depends on what you're trying to accomplish. However, it is practically never seen in venture capital deals or companies headed that way.

One final point--if you are intending to treat your corp as an S corp for tax purposes, you can;t have more than one class of stock.

Hope this helps.

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adlin adlin
 
December 20, 2008 03:28 AM
This is a good answer that answers some of the more general and basic questions that one has when establishing a company. As you noticed, my question more specific and was primarily focussed on the issuance of seperate common stock with special voting priviledges and whilst I agree it is not a structure that one sees often in venture deals - the success of the Google founders in pushing for this type of arrangement has clearly enabled them to keep control and take a long term management perspective. Contrasting with this are the Yahoo Founders who I bet wish now they had possessed super voting priviledges in their common stock.

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