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Ford Motor Co. and TheFacebook, Inc. have both created dual classes of stock so that

Ford Motor Co. and TheFacebook, Inc. have both created dual classes of stock so that the founders can continue to control their company even after it goes public. Should corporate laws permit this? Should some shareholders be more equal than others? If the founders want to control a company, why shouldn’t they buy enough regular stock to do so?

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Expert Solution

Corporate law basically deals with operations of corporations and formation. Corporate law is related to contract law and commercial law. According to corporate law, corporation is considered as legal entity that is created by laws of the state incorporation. It also states that the corporation is treated as legal person that has rights to sue and to be sued.

 

Consider a situation in which two companies FB and F has created dual classes of stock so that all founders of the company can control their company even it goes public. Then corporate law must permit FB and F to create dual classes stock because in dual classes stock various classes have distinct payments and voting rights. So it will not create any problem for the company in future.

 

Some Shareholder of the two companies FB and F must be equal than other because shareholders are known as owners of the company and has potential for receiving profits if that company does well, simultaneously shareholder has potential to accept loss if that company has not does well.

 

If founder needs to control a company, they shouldn’t purchase enough regular stock for that company because regular stock includes higher risk. Regular stocks are purchased by company executive at the previous named price and these stocks has unlimited capital appreciation potential for increasing dividend payouts.


Corporate law basically deals with operations of corporations and formation. Corporate law is related to contract law and commercial law.

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