what is Share Classes

Share classes are a common feature in corporate finance, offering different rights and privileges to shareholders, and are particularly prevalent in mutual funds and public companies. Here's a detailed breakdown: 1. **Understanding Share Classes**: - Share classes are designations applied to specific types of securities, such as common stock or mutual fund units. - They are used by companies to structure ownership and voting control, and to protect against takeovers. - Mutual funds also use share classes with varying sales charges, expense ratios, and minimum investment requirements. 2. **Types of Share Classes**: - **Class A Shares**: Typically carry a front-end load, have lower 12b-1 fees, and lower operating expenses. They offer one vote per share and are commonly used in public companies. - **Class B Shares**: Often have deferred fees and higher 12b-1 fees compared to Class A. They may offer more voting rights than Class A, and are usually reserved for management and controlling parties. - **Class C Shares**: Do not have sales charges but have higher annual fees, known as 12b-1 fees, and operating expenses. They are often available to the general public and may offer less voting power. - **Class D Shares**: Are no-load funds with no front-end or back-end loads and the lowest expense ratio. They are usually available through discount brokers. - **Class I Shares**: Are institutional shares with lower fees and higher investment minimums. They are designed for institutional investors. 3. **Company Share Classes**: - Companies often issue different classes of common stock, such as Class A and Class B, to give certain shareholders more voting power and priority on profits. - Alphabet (GOOG), for example, has Class C shares that offer very few voting rights, such as 1/20th of a vote per share. 4. **Mutual Fund Share Classes**: - Mutual funds offer various share classes to cater to different investor preferences and investment horizons. - Class A shares are commonly used in advisor-sold mutual funds and charge a front-end load, have lower 12b-1 fees, and lower operating expenses. - Class B shares charge a back-end load and have higher 12b-1 fees and operating expenses. - Class C shares have no front-end load, a low back-end load, and higher 12b-1 fees and operating expenses. The back-end load, known as a contingent deferred sales charge (CDSC), may be reduced or eliminated depending on how long shares have been held. 5. **Dual Class Shares**: - Some companies use dual class share structures, where Class A shares are common and Class B shares have more voting power and priority on profits. - This can help companies maintain control and prevent takeovers, as seen in companies like Google, which uses Class A, Class B, and Class C shares with varying voting rights. In conclusion, share classes are a strategic tool used by companies and mutual funds to tailor shareholder rights and privileges, often to maintain control, protect against takeovers, or cater to different investor preferences and investment strategies. Understanding the specific terms and differences of share classes is crucial for investors and stakeholders.