Dual-Class Structure

Anyone who buys a share normally acquires two things at once: a small stake in the company and a voting right at shareholder meetings. In a dual-class structure, these two things are deliberately separated. The company issues two share categories — often referred to as Class A and Class B. One class is intended for ordinary investors and carries one vote per share. The other class, usually held by founders or early investors, carries ten or even twenty votes per share. The economic stakes can be equal, but the power relations are not.

Control despite a minority stake

When a company goes public, it issues many new shares and sells them to investors. The founder’s stake gets diluted in the process — after the IPO, they often own only 15 or 20 percent of the shares. Under a simple one-vote-per-share system, this would mean losing control. Activist investment funds or short-term-minded major shareholders could then exert pressure and force decisions.

The dual-class structure prevents exactly that. Anyone holding shares with tenfold voting rights only needs ten percent of the economic stake to control fifty percent of the votes. This gives founders room to make long-term decisions without having to worry about quarterly results or the next share price. Proponents argue that this allows visionary business leaders to work more effectively.

Critics see it differently. If the founder is effectively impossible to vote out, an important corrective mechanism is missing. Power without checks and balances can lead to bad decisions that shareholders are powerless to prevent. Some institutional investors, such as large pension funds, therefore refuse as a matter of principle to buy shares in companies with a dual-class structure.

How voting weights are specifically distributed

The exact design is determined by each company itself in its articles of association before going public. A ratio of 10:1 is typical — ten votes for Class B shares, one vote for Class A shares. Some companies opt for 20:1. Class B shares are usually not freely tradable; they can often only be converted into Class A shares but not sold directly.

Many structures include so-called sunset clauses. These are expiration rules that automatically eliminate the multiple voting rights — for example, after ten years or when the founder leaves the company. They are meant to prevent the special voting rights from being passed on to heirs who never held operational responsibility. How effective such clauses are in practice is a matter of debate.

There is also a technical difference from ordinary preferred shares, which are common in Germany. Preferred shares typically carry no voting rights but pay a higher dividend in return. Dual-class shares tend to reverse this relationship: both classes may participate in profits, but only one carries disproportionately high voting power.

Tech IPOs as the main use case

The dual-class structure is particularly widespread in the technology industry. Google went public in 2004 with such a structure; co-founders Larry Page and Sergey Brin thereby retained control for a long time. Meta, Snap, and Lyft followed the same principle. Today, the structure is more the rule than the exception in tech IPOs.

In financial and tech news, the term mainly comes up when a company announces its IPO or when a major shareholder tries to exert influence against the will of the founders — and fails. Regulatory debates also address the topic: in the European Union, there was long discussion about whether multiple-voting-rights shares should be permitted at all. Since 2023, they may again be issued in Germany under certain conditions, after having been banned for decades.

For investors, the dual-class structure is a warning sign worth knowing about. You can invest in a company and still have practically zero influence — no matter how many shares you buy. This is not hidden information; it is stated in the stock exchange prospectus. It therefore pays to look closely at which share class you are acquiring and what it is actually worth.