Voting Shares

A share is a small stake in a company. Whoever buys one belongs, to some extent, to the firm and is allowed to have a say. This very right to have a say is called voting right: once a year the owners meet, and important questions are put to a vote there. It’s about, for instance, who controls the company or whether part of the profit is paid out. Voting shares are the shares that count in such votes. And not every share counts equally: some companies issue different classes of shares, and one class then carries more weight than the other.

Why founders want to retain control

A company that goes public sells shares to outside people. This usually also means giving up power. Whoever holds enough shares can replace the company’s leadership. Many founders want to prevent that. They fear that investors only look at short-term profit and would stop long-term projects.

The solution is two share classes. The founders keep shares in which one share carries ten or more votes. The public gets shares with one vote or none at all. This way a founder can own just five percent of the company’s value and still control the majority of the votes. This is exactly the case at Meta: Mark Zuckerberg holds a small portion of the capital, but the majority of the votes.

For investors this is a double-edged sword. They benefit if the founder has a good vision and can carry it out undisturbed. But they are powerless if he makes mistakes. Large fund companies therefore regularly criticize such structures. Some stock indices have even excluded companies with unequal voting rights at times.

How the votes are allocated and counted

The basic rule to begin with is: one share, one vote. Whoever holds a thousand shares has a thousand votes. Voting takes place at the annual general meeting, the yearly gathering of the owners. One does not have to appear in person. Usually, one casts one’s vote in advance online or by proxy.

With a multi-class structure, this basic rule is loosened. The class for the public carries one vote per share. The founders' class carries ten votes per share. Economically, both types are often worth the same, so they receive the same share of the profit. Only the power is unequally distributed. At Alphabet, Google's parent company, there is even a third class with no voting rights at all.

A common misconception is that voting rights are always more expensive. In fact, the price difference between the classes is often small, sometimes just one or two percent. The reason: as long as a founder holds the majority anyway, the individual vote is practically worthless. Many such structures also contain a sunset clause. If the founder sells his shares or departs, they automatically convert into ordinary shares.

Voting rights in IPOs and takeover battles

Voting shares are most often mentioned when a tech company goes public. The filings then state which class is being sold and how many votes the founders retain. Snap took this to the extreme in 2017 and sold shares with no voting rights at all. Buyers shared in the profits but had zero influence.

A second topic is takeovers. Whoever wants to buy a company needs the approval of the voting majority. An unequal structure makes hostile takeovers practically impossible. This protects against attacks, but can also prevent shareholders from accepting a good offer.

In Germany, multiple voting shares were long prohibited. Since the Future Financing Act (Zukunftsfinanzierungsgesetz) of 2023, they are allowed again, though with limits: at most ten votes per share. The goal is to win young tech companies over for an IPO in Germany rather than in the US. Anyone buying a share should therefore check the prospectus to see which class they are actually acquiring.