Share Classes – A Definition

Before any Canadian investor puts their hard-earned money into any particular investment, they should be aware of the loads and risks involved in their share class. The uninformed investor will pick their investment without considering the share class they have bought into. This could result in unanticipated investment loss or poor dividend performance. In order to make an informed financially wise decision in securing your investment you should have a basic understanding of shares class and their differences.

Like others, Canadian stocks and funds are divided into share classes. Each share class has a specific performance and risk level, not to mention load levels of investment. They are divided into class of common shares and preferred shares and then divided once more into subclasses such as, Class A shares, Class B shares, and Class C shares. Knowing these classes and their meaning to you as the investor will allow you to pursue more profitable investment strategies.

Businesses who wish to create capital through investment put forth a range of shares that can be traded to investors for capital. These shares are usually divided into two groups:

Preferred Shares – This share grouping refers to shares that are guaranteed, somewhat like bonds, to pay when there are dividends to be had. The share is also secured in the event that the company goes bankrupt. The preferred shareholder is guaranteed first dibs at company assets before the common shareholder. With this safety, however, comes a price. The interest on preferred shares is lower than common shares and should be a long-term investment option for the Canadian investor.

Common Shares – This grouping refers to shares that the company releases for a public offering. These shares are purchased and sold by the investor through the use of a secondary market. Common shares have more risk and do not regularly pay dividends. In fact some common shares of well-to-do corporations pay no dividends at all. Unpaid dividends aren’t your only consideration. For instance of the company were to go insolvent, common shareholders would get their money last, meaning they have a far better chance of investment loss.

Class A Shares – This subclass is part of the preferred stock or share class. Canadian Class A shareholders have more powerful voting rights than the other classes of shares regarding the companies financial operations and business model modifications. Therefore Class A shares are predominately distributed among management rather than the general public traders.

Class B shares – This share subclass is under the heading of common stock or share. In a corporate investment, Class B shares might or might not have voting rights greater than the other shares. This is because companies are allowed to define their own class characteristics. Class B shares are usually issued in mutual funds. These shares have the ability to pay dividends if the shares are sold between four to six years after initial investment. These particular Class B shares usually have a higher investment load level than other shares.

Class C Shares – This subclass is also considered a common share class. Predominately issued by mutual funds, Class C share classes offer the Canadian investor an option that doesn’t require either back or front-end investment loads. For instance, you’re in Saskatchewan and you make $1000 online investment. The mutual fund company you’ve picked has a 4% front-end load. This means you only have $960 left to invest. Class C shares have none of these loads. However, Class C shares require more ongoing financial maintenance in the form of handling and trading fees.

In short many investors uses preferred shares for less risky investments the opposite can be true for placing capital in common shares.