What are A-Shares?
A-shares are a share classification for common or preferred stock. Share classification refers to the different types of shares that investors can own in a company’s stock.
The different types of shares provide different levels of benefits and rights. For example, a company may issue Class A, Class B, and Class C shares. It is important to note that it is not required for a company’s stock to take on multiple share classes.
Moreover, a company can choose how they want to define the benefits for different classes as they don’t violate any rights or laws associated with the holders. The benefits pertaining to holders of Class A can fall in areas such as dividends, asset sales, or voting rights.
- Class A shares are a classification of stock. Different types of shares provide different levels of benefits or rights.
- The main areas of extra benefits in relation to stock classification are voting rights, liquidation preferences, and dividend payouts.
- Knowledge surrounding the different types of shares of a company can help investors in making informed decisions on which shares they purchase.
To expand, when the company is doing well, shareholders of certain classes will be given priority for the dividend payouts or they may receive extra votes in comparison to holders with shares from other classes. However, it’s important to underline that the shares may also come with restrictions in exchange for the extra benefits.
For example, a shareholder’s voting rights are reduced, but in turn, they receive preference in terms of dividend payouts. In addition, sometimes holders of the Class A shares can convert their shares into Class B shares at a certain rate. Class A shares differ from other classes, for example, in their sales charges.
Class A shares in the United States could come with upfront charges on the amount being invested, whereas Class B or Class C shares wouldn’t. However, Class B shares would include other ongoing expenses that Class A shares do not.
If an investor purchases Class A shares, there will be front-end sales charges. For example, if a shareholder were to invest $100 and 5% was the sales charge, they are technically only investing $95 in the company.
On top of the front-end sales charge, there may be an annual sales charge. Front-end sales charges would typically not be a part of the purchase of Class B or Class C shares.
Class A Share Fees
Class A shares are a traditional kind of front-end load shares, which require a sales charge at the time of purchase. The fee will be taken off the total amount invested.
Additionally, there will usually be an annual fee for the shares. A common situation for Class A share fees is a 5.75% loading fee at the time of purchase and a 0.25% distribution fee annually.
Importance of A-Shares
Generally speaking, it’s important to recognize and understand different share types when purchasing company stock. As an investor, it is critical to understand the different types, so you make smarter decisions with your investments and choose the share classification that suits your situation best.
Also, it is important to understand the different fees associated with different share types so that you know the effects of the fees on your overall returns.
As an investor, you should determine what your priorities are concerning your investments. For example, if you’re looking for more voting rights and certain Class A shares will provide them, then they are the shares you should choose to purchase.
Moreover, as the share issuer, it is important to understand the different levels of shares so that you can potentially concentrate on voting power or dividend payout to a certain class type should you require it.
CFI is the official provider of the global Certified Banking & Credit Analyst (CBCA)™ certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional resources below will be useful: