What is Classified Stock?

Classified stock is a type of common stock that has special privileges, such as enhanced voting rights or dividend rights. The main differentiator is that certain types of classified stock have a larger number of votes per share. Company founders use these share holdings to maintain control over their businesses even after they have sold a large portion of the outstanding shares to other investors.

There may be several types of classified stock, such as Class A or Class B stock. The charter and bylaws of a corporation contain the specific privileges accorded to each type of stock. When classified stock is present, a company is said to have a complex capital structure.

Example of Classified Stock

For an example of classified stock, Alphabet Inc. (Google's parent company), has multiple classes of common stock. They are as follows:

Class A stock, 1 vote per share, held by public investors.
Class B stock, 10 votes per share, held by founders and insiders.
Class C stock, no voting rights, held by public investors.

Investors seeking control and voting power might prefer Class A shares, while those primarily interested in economic benefits may opt for Class C shares.