Watchers of the blockbuster Coinbase Global Inc (NASDAQ: COIN) debut listing last night might have noticed something that would look rather odd to an ASX investor. That's apart from its 52% pop upon listing, of course.
Coinbase shares are often referred to as 'Class A'.
Now, this isn't some arbitrary badge of self-congratulation (i.e aren't we a Class A company?). It actually refers to something that is enormously relevant for any current or potential Coinbase investor.
And it's this: Coinbase has two classes of shares. But only one is available for everyday investors like you or I. Those shares are the Class A shares that investors can now buy on the Nasdaq exchange. Those shares entitle the owner to one vote per share at Coinbase, as one might expect.
However, there is also another class of shares that investors can own of Coinbase – Class B shares. According to Coinbase's SR-1 prospectus filing with the US Securities and Exchange Commission (SEC), an owner of a Class B share is entitled to 20 votes per share, rather than 1. However, these shares are not available to the public or on the stock market. Only institutional investors and company insiders can own and trade these shares.
What's the deal with Class A and B shares?
If this sounds outrageously unfair to you, I wouldn't be surprised. On the ASX, these types of multi-class shares that don't conform to a 'one vote, one value' system are not permitted. However, they are common in the US. It gives companies a way to retain power with founders or insiders while permitting them to dilute their ownership of the company. Its proponents often argue that it allows the founder to focus on the company's long-term future by not having to worry about other substantial shareholders.
Other companies that employ a ClassA/B model include Berkshire Hathaway Inc (NYSE: BRK.A)(NYSE: BRK.B), Facebook Inc (NASDAQ: FB) and Fox Corp (NASDAQ: FOX)(NASDAQ: FOXA).
Triple the fun
However, it could be even more complicated. Some companies even have a triple-class share structure. Take Google-owner Alphabet Inc (NASDAQ: GOOG)(NASDAQ: GOOGL). It has three classes of shares. Class A shares trade under the GOOGL ticker. Those owners are entitled to one vote per share. Class C shares are the GOOG shares. Class C owners get 'observer status' with zero votes per share. Alphabet's Class B shares get 10 votes per share, but, like Coinbase Class B, are not traded on the public share market, and are mostly owned by Alphabet's founders Larry Page and Sergei Brin. Page and Brin, incidentally, have now left the company but kept their Class B shares.
Perhaps the most undemocratic model on the US markets goes to Snapchat owner Snap Inc (NYSE: SNAP) though. According to Snap's filing prospectus from 2017, there are three classes of SNAP shares. But only Class A are publicly available. Class A shares, however, come with zero votes. Class B shares are available to insider investors. But these shares still only come with one vote apiece. Class C shares come with 10 votes per share. But only Snap's co-founders in Evan Spiegel and Bobby Murphy own these shares. According to Snap's prospectus, this gave them 88.5% of the company's voting power at listing.
America may be a democracy, but its share markets are a different story in many cases.
