Also known as: class of shares · classes of share · share classes · classes of stock
Written by attorneys · grounded in primary & secondary sources — see below
A category of stock that a corporation is authorized to issue under its articles of incorporation. Each class receives a distinguishing designation together with terms that fix its preferences, rights, and limitations. Shares within the same class must carry identical terms.
Canyon Construction files articles that authorize 1,000,000 common shares and 200,000 preferred shares. The articles designate the preferred shares as a separate class and state that they carry a cumulative dividend preference and liquidation priority over the common shares. Before any preferred shares are issued, the articles describe those rights in full. The corporation may now issue shares from each class on the stated terms.
Clifford Cox and Christine Castro sign a voting trust agreement covering their common shares and transfer those shares to the trustee. The trustee prepares the required list that records the number and class of shares each beneficial owner transferred. The trustee delivers the list and agreement to the corporation. The trust becomes effective on the date the shares are registered in the trustee's name.
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Crestview Holdings issues Class B shares to non-employee investors. The board later approves a stock repurchase program that buys Class B shares at the same price offered to employee holders of Class A shares. The non-employee holders challenge the program as unfair. The court examines the entire fairness of the transaction to the Class B holders and finds the terms satisfy that standard.
Sinclair Oil Corp. owns all the shares of a subsidiary that has only one class of stock outstanding. The subsidiary pays large dividends to its parent. Minority shareholders of the subsidiary sue, claiming the dividends unfairly favor the parent. The court applies the business judgment rule because the dividends comply with statutory requirements and no abuse of discretion is shown.
Yes. The articles must set forth each class and series the corporation is authorized to issue, together with the number of shares in each class or series and a distinguishing designation for each.
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Yes. Modern statutes permit the board to distribute assets pro rata to the holders of one or more classes or series of shares without shareholder approval unless the articles provide otherwise.
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Yes. Under Model Business Corporation Act § 10.05(d), the board may adopt an amendment that changes each issued and unissued share of the single outstanding class into a greater number of whole shares of that class.
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Yes. Holders of a series or class affected by an amendment in specified ways are entitled to vote as a separate voting group on that amendment.
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…continuity through employee management and ownership. Mr. Barton established the Corporation in 1928 by creating two classes of stock, not one, and by holding 100 percent of the Class A stock and 82 percent of the Class B stock. Mr. Barton himself established the practice of purchasing key man life insurance with funds of…