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What is a dual-class firm? Why do firms typically issue dual classes of common stock?

What is a dual-class firm? Why do firms typically issue dual classes of common stock?

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A common stock provides the investor ownership rights in an organization. A firm can issue more than one class of common stock with different voting rights and dividend rights for each class is typically known as a dual class firm. It basically consists of two or more share classes with unequal voting and dividend rights.

Firms typically issue dual classes of common stock for the following reasons:

1) It allows the companies to raise funds from secondary market without losing the control of the firm.

2) It help's firms to expand business growth in new sectors by raising funds more efficiently.

3) It helps startup technology firms to raise capital for growth, as they often don’t have a proven market and the expertise required is very specialized and in most cases restricted to founders of the firm.

4) It helps the founders to have greater control on the firm and enable them to take swift actions on key decisions required for the overall growth of the firm.

jeff jeffy answered 1 year ago
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