Question

Some companies, such as Google, have created classes of stock with little or no voting rights at all. Should this be allowed? Why would investors buy such stock? Explain in detail please.

Answer 1

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Such type of shares is called shares with differential voting rights.

It gives you the same ownership as an ordinary share but without voting rights.

For example: if a company became bankrupt.
Its net asset is $250, it has 1 ordinary share and 1 share with differential voting rights.

Both will receive $125 each.

Note: ONLY DIFFERENCE: NO VOTING RIGHTS.

Advantages of issuing differential voting rights shares for the company.

1. It helps the company to avoid a hostile takeover.
2. To issue more capital without diluting the ownership structure.
3. For getting control in the decision making process.
4. Helpful in raising capital for large projects.

Advantages of issuing differential voting rights shares for the company.
1. SUCH SHARES ARE ISSUED AT A DISCOUNT & for an incremental dividend.
2. If an investor is looking for just GOOD returns and no voting rights (eg: retail investors).

Such classes of shares should be allowed.