C Class Citizens

One way for founders or inside groups to retain control of a growing company is to cause the company to authorize "Class B" Common shares, with supervoting rights.

Another way is demonstrated by what Google has just done: amend the company charter to establish a "Class C" of non-voting shares.

Google's newly amended charter calls the new class, not "Class C Common," but "Class C Capital Stock." This perhaps emphasizes that the stock is not to have voting rights.

Here's the key, operative provision from the amended charter:

"Except as otherwise required by applicable law, shares of Class C Capital Stock shall have no voting power and the holders thereof, as such, shall not be entitled to vote on any matter that is submitted to a vote or for the consent of the stockholders of the Corporation."

At the same time, the amended charter goes on to spell out rights of the Class C, to make clear that the holders have economic rights comparable to those of voting common stock. Here's a general statement of fundamental equality (qualified, of course, by the proviso at the beginning of the sentence):

"Except as expressly provided in this Article IV, Class C Capital Stock shall have the same rights and privileges and rank equally, share ratably and be identical in all respects to the Common Stock as to all matters."

There's even a kind of backstop protection, in that the Class C Capital Stock is made to convert into Class A Common Stock in certain circumstances:

"Immediately prior to the earlier of (i) any distribution of assets of the Corporation to the holders of the Common Stock in connection with a voluntary or involuntary liquidation, dissolution, distribution of assets or winding up of the Corporation pursuant to Section 2(c) or (ii) any record date established to determine the holders of capital stock of the Corporation entitled to receive such distribution of assets, each outstanding share of the Class C Capital Stock shall automatically, without any further action, convert into and become one (1) fully paid and nonassessable share of Class A Common Stock."

Should you value a non-voting share differently to a share with a vote?

Photo: gaelx / Flickr.