The Case for Dual-Class of Shares

36 Pages Posted: 7 Feb 2019

See all articles by Yvan Allaire

Yvan Allaire

Institute for Governance of Private and Public Organizations (IGOPP)

Date Written: December 20, 2018

Abstract

The debate over whether dual class of shares increases or decreases share value, should be prohibited or not, should be subjected to mandatory sunset provisions, and so on has been heating up over the last few years. This paper reviews the pros and cons of dual class of shares in light of more recent empirical results of (mostly) American studies. The paper surveys the evolution of dual-class companies in the Canadian context and makes a number of recommendations to enhance the usefulness of this type of capital structure and protect the rights of minority shareholders.

The paper comes out against time-based sunset clauses but supports the obligation for dual-class companies to adopt a “coattail” provision, as is the case in Canada, which provision ensures that all shareholders will have to be offered the same price and conditions should the controlling shareholder decide to sell its controlling stake in the company. The paper also recommends that separate tallies of vote results be made public for each class of shares and that a third of board members be elected by shareholders with “inferior” voting rights.

Not only is there growing evidence of their better economic performance but the coupling of dual class and family ownership brings about longer survivorship, better integration in the social fabric of host societies, less vulnerability to transient shareholders and more resistance to strategic and financial fashions.

This precious form of ownership must come with appropriate measure to ensure and protect the rights of minority shareholders.

Keywords: Dual-Class Shares, Sunset Provisions, Controlling Shareholders, Founding Shareholders, Minority Shareholders, Concentrated Ownership, Governance, Voting Rights, Non-Voting Stocks, Transferability of Control, Coattail

JEL Classification: G32, G34, G38, O51, K22

Suggested Citation

Allaire, Yvan, The Case for Dual-Class of Shares (December 20, 2018). Available at SSRN: https://ssrn.com/abstract=3318447 or http://dx.doi.org/10.2139/ssrn.3318447

Yvan Allaire (Contact Author)

Institute for Governance of Private and Public Organizations (IGOPP) ( email )

1000 de la Gauchetiere West
Suite 1410
Montreal, Quebec H3B 4W5
Canada
514 439-9301 (Phone)
514 439-9305 (Fax)

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