Founder Control

Dual-Class Stock

Dual-Class Stock

Quick Facts

  • Voting ratio: Typically 10:1 (ten votes vs. one vote per share)
  • Prevalence: ~7% of S&P 500 companies; common in tech IPOs
  • Notable users: Alphabet, Meta, Snap, Berkshire Hathaway

A dual-class stock structure gives different classes of shares different voting rights. Typically, founders hold high-vote shares (e.g., 10 votes per share) while public investors hold low-vote shares (1 vote per share), allowing founders to maintain control despite owning a minority of economic interest.

Why It Matters

Ever wonder how Mark Zuckerberg can make major decisions at Meta despite owning only 13% of the company? Or how Google's founders still call the shots? Dual-class stock is their secret weapon—and understanding it is essential for any investor or founder.

How It Works

  • Class A shares: One vote per share (public investors)
  • Class B shares: Ten votes per share (founders/insiders)
  • Class C shares: Zero votes (some companies, like Alphabet)

Example: A founder owns 12% of economic value but controls 52% of voting power.

Famous Examples

Google (Alphabet)

Larry Page and Sergey Brin control over 52% of voting power with less than 12% economic ownership through Class B shares. Alphabet actually has three share classes: Class A (GOOGL) with one vote, Class B with ten votes (held by founders), and Class C (GOOG) with zero votes.

Facebook (Meta)

Mark Zuckerberg controls approximately 58% of voting power with roughly 13-14% economic ownership. Class B shares have 10 votes each.

Snap Inc.

The most extreme case: Snap IPO'd in 2017 with zero-vote shares for public investors. Founders Evan Spiegel and Bobby Murphy retained 100% voting control.

Rationale

Proponents argue dual-class structures:

  • Protect long-term vision from short-term shareholder pressure
  • Enable founders to focus on innovation over quarterly earnings
  • Prevent hostile takeovers
  • Attract visionary founders to public markets

Criticism

Critics argue dual-class shares:

  • Entrench underperforming management
  • Reduce accountability to shareholders
  • Create governance risks
  • May depress stock valuations
  • Index policy reversal: S&P 500 stopped adding dual-class companies in 2017, but reversed this policy in April 2023
  • Sunset provisions: Some companies add expiration dates (typically seven to twelve years post-IPO)
  • Institutional pressure: Large investors like BlackRock and Vanguard increasingly oppose dual-class structures

Dual-class structures are legal in the US but banned or restricted in many other markets. The UK, Hong Kong, and Singapore have historically prohibited them, though some jurisdictions are reconsidering.

Practical Takeaways

For founders: Dual-class stock is your most powerful tool for maintaining control after going public—but it comes with trade-offs. Some institutional investors won't buy your stock, and you may face valuation discounts. Consider sunset provisions to address investor concerns.

For investors: Before investing in dual-class companies, understand that your voting power is limited. Focus on whether management has a strong track record and aligned incentives. Look for sunset provisions that eventually restore equal voting rights.

  • Poison Pill — Another tool founders use to maintain control
  • Proxy Fight — How activists challenge management (harder with dual-class)
  • Hostile Takeover — What dual-class stock is designed to prevent
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