What are the different “Classes of Shares”? And, what is the purpose of issuing shares in different classes?
The purpose of different share classes is to provide different classes of ownership and the related risks and privileges. By offering different share classes the following rights or features can be adjusted: Voting rights Liquidation preference Dividend payouts and preferences Conversion features (converting one class of shares to another) For start-ups shares of one class may be issued to VCs and Angels that provide for higher liquidation preference, dividend payments in arrears and options to convert to standard common stock so that once the company moves from development stage to revenue producing the early investors can convert.
