Control Stock

  

Here's a pitch you can't turn down. Someone starts a company. They say that they'll have 15 shares of the stock for sale. They'll keep five of the shares, and anyone else who wants to buy into their next great idea can purchase the other ten shares. So five new people purchase the other ten shares.

But there's a catch. The five shares the owner has are A-Shares of company stock, and the ten shares owned by the other five people are B-shares of the stock.

A-Shares get three votes each during company meetings.

B-Shares receive two votes during the meeting.

So the owner now has 50% of the company's assets, but 60% of the voting rights. And the other five people have 50% of the company assets, but 40% of the voting rights.

The A-Shares are an example of control stock, which provides a certain class of investor greater influence in the company than others. The structure is commonly done to ensure that CEOs and founders maintain influence over their companies.

This trend has been popular among technology companies. Facebook and Google both have different classes of stock that ensure their founders maintain totalitarian control of the company...while throwing a few bucks down to the pleb shareholders now and then.

Related or Semi-related Video

Finance: What is Control Value?15 Views

00:00

Finance allah shmoop what is control value dance on a

00:07

fifty shades thing Well there's a partnership a semi evil

00:10

one there was once a tv siri's It was exorbitantly

00:14

expensive to produce but everyone wanted to make it So

00:18

it ended up being made not by one studio but

00:22

by three viacom paramount disney and then news corp fox

00:27

Before it was disney news corp fox well each of

00:29

the three partners put in a third of the money

00:31

and split all the money distributions equally The problem on

00:35

the show ended up being hugely successful when it ran

00:38

for the first time on network tv so that was

00:41

great but now it's in reruns and because all three

00:43

competitors generally hate each other he's financially if their job

00:47

too none are willing to run the show a lot

00:50

on their cable network or broadcast network because then they

00:53

generate revenues for their hated competitors so they don't run

00:57

the tv series even though people want to see it

00:59

And this is a big fat bummer to the actors

01:01

writers and producers of the show who were banking on

01:05

rerun royalties to pay for their divorces if one of

01:08

the studios owned the siri's I'ii controlled it let's call

01:12

that siri's sunlight ing well then the siri's would heir

01:16

a ton more and presumably generate a ton more desperately

01:20

needed revenues What do you think divorce lawyers work for

01:23

free Well the control value of owning that asset then

01:27

is huge because if it were owned by one player

01:31

well then that player could run it again and again

01:33

and again and again on their network like think big

01:36

bang on tbs and then monetize that asset and massively

01:40

so there's Incremental control value with the well controlling a

01:45

property And yet it's not to be confused with remote

01:48

control value which is about a buck twenty five on 00:01:51.209 --> [endTime] ebay

Up Next

Finance: What is non-voting stock?
4 Views

What is non-voting stock? Non voting stock is a class of stock that carries no voting rights on agenda items subject to shareholder vote. While som...

Find other enlightening terms in Shmoop Finance Genius Bar(f)