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In: Accounting

what is a dual-class firm? Why do fitms typically issue dual classes of common stovks? As...

what is a dual-class firm? Why do fitms typically issue dual classes of common stovks? As an Investor, would you dupport, or oppose issuance of dual vlass securities? Why?

Solutions

Expert Solution

The dual-class firms are the one which deviates from the one share one vote regime. This kind of firm has more than a class of shares. In this, we different classes of shares have different kinds of voting rights.

Firms generally issue dual classes of common stocks because the insiders are given access to a class of shares and it comes with a high level of control and voting rights. The high level of control and voting rights are given to only Insiders only and the general public does not have such rights. Dual-class structures are purely controversial because they do not allow shareholders in the company which they run and distribute the risk equally.

As an investor, the opposed to the issuance of dual-class securities is better because the founders have the leadership and long-term interests and they control the company. Shareholders who are investors mainly carry the major risk due to the unequal distribution of risk. The reason which investors oppose the issuance of securities.


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