Understanding Share Classes

If you've ever tried to purchase shares of Google's parent company, Alphabet, you may have noticed two ticker symbols: GOOGL and GOOG. The two stocks seem nearly identical, with only slight differences in their price per share, but they have one important distinction: share class.

"Companies use share classes to assign rights and privileges to certain shareholders," says Steven Greiner, managing director of Schwab Equity Ratings^® at the Schwab Center for Financial Research. "For example, one share class may allow investors to vote on corporate policy, while another offers higher dividend payout"

While there's no limit to the number or types of share classes a company can issue, they generally fall into one of four categories:

• Common/ordinary shares: These typically come with one vote per share. (GOOGL is a common share.)
• Executive shares: These typically come with multiple votes per share and generally are reserved for founding owners, key employees, and/or early investors.
• Preferred shares: These typically do not have voting rights but receive higher, often fixed, dividend payments and a greater claim to assets than common shares in the event of liquidation.
• Nonvoting shares: Offered by a small percentage of companies, these shares do not have voting rights but are available at a slight discount as recompense. (GOOG is a nonvoting share.)

"Some companies will issue executive shares for the express purpose of keeping voting control in the hands of a few," Steven says. Alphabet, for example, has a Class B share—whose vote is worth 10 times that of a common share—available only to the company's founders.

Which raises the question: If your vote is worth less, should you bother voting at all? 

"Unless you're a majority shareholder, it's true your individual vote won't matter that much," Steven says. "But small shareholders, when they band together, can make meaningful change." In fact, a number of activist shareholder groups have emerged in recent years to help influence companies' policies related to governance, environmental, and social impact, and more.

If you're less interested in voting on corporate governance, Steven says it's perfectly acceptable to opt for a company's nonvoting shares. "These shares will perform the same as the voting shares," he says. "The most important thing is that the stock be appropriate for your goals."