Category: 

What Are Classified Shares?

Article Details
  • Written By: Jim B.
  • Edited By: Rachel Catherine Allen
  • Last Modified Date: 14 December 2018
  • Copyright Protected:
    2003-2018
    Conjecture Corporation
  • Print this Article

Classified shares are those shares offered by a company that are distinguished by certain rights, or lack thereof, belonging to the owners of those shares. Among these rights include dividend payments, voting rights, or the right to get paid should the company liquidate its assets into cash. By using classified shares, companies are essentially giving certain extra rights to some shareholders that others will not receive. In the world of mutual funds, shares may be classified in terms of the timing that fees owed to partake in the fund are paid.

When a person buys shares in a certain company, he or she is essentially getting a tiny piece of ownership in that company. As the company's fortunes rise and fall, the worth of the shares owned will increase or decrease in value. The potential worth of shares is not the only way that investors can benefit from stock ownership. In some cases, company policy may dictate that certain shares of stock afford the owners of the shares specific rights not available to other shareholders. These shares are known as classified shares.

A company offering classified shares may separate shares into different classes, like "Class A" or "Class B." Company bylaws, which can be found in company charters that are part of the public record, usually outline just what each classification of shares entails. By studying these charters, investors can decide what class of shares they might want to buy.

Ad

There are many different rights that might be afforded investors by classified shares. Voting rights are chief among these rights, since they afford the person that holds them a part of the decision-making process for a company. Some shares may be classified by whether dividends, which are cash bonuses offered by companies to shareholders as a reward for loyalty, are paid out to the investors that hold them. In addition, a company that has to liquidate its assets may pay off certain classified shareholders before others.

Mutual funds, which are pooled investment vehicles that invest in multiple securities and pay off investors based on the value of these securities, may also be involved with classified shares. In this case, the shares are classified by when the "load," which is the fee paid to fund management for administration of the fund, is paid. Certain shares allow this amount to be paid when the investor cashes out of the fund. Others necessitate that the load must be paid when the investor buys into the fund.

Ad

Recommended

Discuss this Article

Post your comments

Post Anonymously

Login

username
password
forgot password?

Register

username
password
confirm
email