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Less Common: Dual-Class Common Stock

Some startup attorneys recommend incorporating with two classes of common stock, where one of the classes has more voting power than the other. This is known as "dual-class common stock" or "dual-class stock" and is used by some large public companies to make it easier for people to maintain control. Some people name the more powerful class of common stock "Class F Common Stock".1

However, other startup attorneys think this is an over-optimization and point out that the public companies that have dual-class common usually only added it later, when they were more mature. These attorneys point out that dual-class common typically only matters when the company raises venture capital, and whether investors permit the company to have dual-class common depends on the founders' negotiating leverage. In their view, if a company has enough negotiating leverage to retain dual-class common, it will likely also have enough to implement dual-class common at the time of investment anyways.

Startup attorneys recommending dual-class common at incorporation generally agree with this, but calculate that there's some negotiation advantage to having the dual-class common structure be something that investors need to remove as part of a financing. Other startup attorneys believe the presence of dual-class common stock has little impact on negotiations and point out that dual-class common stock will generally increase the complexity of the startup's legal paperwork moving forward. This will likely lead to increased legal fees and investors may take longer to complete their due diligence.