DEFINITION OF 'A shares'
What are A-shares?
A-shares, or class A shares, are shares in a company with a specific set of rights typically set-out in their corporate charter and bylaws. These shares commonly offer investors voting rights, dividend priority, and liquidation preferences. These ensure that the holders of A-shares are paid first in the event that things are going well, in the form of dividends, and when things go bad, with priority on cash generated from the sale of assets during a liquidation.
Of note, class A are the highest ranking ordinary share though some investors may hold preference shares which, in some ways, may offer more, or different, benefits to ordinary share holders.
Why are A-shares important?
Class A are the most important of the ordinary shares that can be issued to an individual. When companies first start the founders and early investors will be issued predominantly them. The benefits granted to holders of A-share set the tone for all share classes to follow. When a company goes public they generally issue B-shares, C-shares or beyond so investors must know what their share class entitles to them to as well as what the holders of A-shares are getting. If, for example, A-shares come with 5 voting rights each, and all other shares come with just 1, those purchasing other share classes must understand that their voting power is diminished by these differences.
Who gets A-shares?
Typically, Management, early investors, and a few others will receive A-shares. When companies list on a publicly traded market they often list B or C class shares which typically come with one vote per share. For investors looking to invest in a company it’s important to understand what type of shares they are receiving and what rights they are receiving in comparison to those who may hold other share types.
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