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An Introduction to the Law of Corporations: Cases and Materials, Fall 2017

Stock with Multiple Voting Classes

1

According to §212, the default is that every share of stock has one vote.  However, because the corporate code provides for parties to tailor their arrangements, it is possible for boards to issue different classes or series of stock with different rights.  The most common, though certainly not the only, customization of stock in recent years is the creation of multiple classes of stock with different voting power.  In recent years, multiple class voting structures have become popular with founder-led tech companies when they go public. For example, corporations like Alphabet (Google), Facebook, Twitter, and Snap, among others, all have multiple classes of stock, each with different voting rights.  High vote stock, held by the controlling stockholders in these corporations, typically have ten votes per share, while stock held by the public has stock with a lower number of votes per share. 

2

Alphabet (Google) has a relative complex share structure. Alphabet's Class A shares are the shares commonly held by the public. These shares have one vote each. Alphabet's Class B shares are high vote shares held by the founders.  These shares have 10 votes each. The final Class of shares in Alphabet at no-vote Class C shares. Class C shares do not have the right to vote. Alphabet uses these shares as acquisition currency. Class C shares permit the founders to purchase other companies for using Alphabet stock as the currency without risking reduction in the voting power of the founders. By holding high vote Class B shares, Google's founders can control the outcome of stockholder votes without holding an equivalent economic interest in the corporation.  

3

Snap went public last year with its own version of multiple classes of shares. In Snap's case, the company has three classes of common stock: Class A, Class B, and Class C. Holders of Snap's Class A common stock are not entitled to vote on matters submitted to the stockholders. Holders of Snap's Class B common stock (mostly made up of employees and venture investors) are entitled to one vote per share. And holders of Snap's Class C common stock (held by Snap's founders: Evan Spiegal and Robert Murphy) and  are entitled to ten votes per share. Holders of shares of Class B common stock and Class C common stock will vote together as a single class on all matters (including the election of directors) submitted to a vote of stockholders. As a result of this voting structure Evan Spiegel and Robert Murphyare able to exercise voting rights with respect to approximately 88.5% of the voting power of Snap's outstanding capital stock.

4

Pursuant to Section 212(a), where a corporation has multiple classes of stock with different voting power, then the entire code should be re-read and where the code calls for "share" (with respect to required votes or quorum, etc) that must be read to read "votes".