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Class A shares are a tier of stock that has either more or less voting rights than those in the Class B tier. Often, people think that Class A shares actually carry more voting rights than their Class B counterparts. The reality is that the amount of rights depends on the particular stock. As such, stockholders are wise to be careful in assessing Class A shares because some companies try to hide the limited voting rights of certain stocks by giving them Class A status.
Class A shares are not available for purchase by the general public, and they are not eligible for trading like other stocks. Instead, these shares are held by a company's management and used to provide some level of protection against stock-market fluctuations. This setup allows an organization's management to control a portion of the company's equity and hold on to a significant amount of voting rights. This type of stock classification is said to be helpful for allowing a company's management to focus on business goals.
To understand a company's share classes fully, one must refer to the company's bylaws and charter. An explanation of the company's voting rights will be included in these documents. For example, one Class A share could be worth three voting rights while a Class B share may be worth two voting rights or vice versa. It is worth noting that both share classes typically offer the same rights to company profits.
Sometimes, the term "Class A share" is used to refer to investments that are offered to the public, such as mutual funds. In such cases, investors must pay a front-end load for these mutual fund shares. A front-end load is an initial sales charge that an investor must pay when buying shares with the assistance of a financial advisor. In contrast, Class B mutual fund shares do not carry font-end loads. Instead, they carry higher annual expenses; the higher expenses stay in effect for a specific period of time, such as seven years.
In some cases, publicly offered Class A shares can be purchased at reduced sales-charge rates. For example, an investor may pay less in sales fees with combined purchases. He or she may also pay fewer fees for investing in excess of certain amounts. Sometimes, there are even special fee waivers for investors that fit in specific categories. Special conditions for the sale of Class A shares can be found in a fund's prospectus.
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