Classes of common stock

Some corporations issue different classes of common stock that can have different characteristics. For example, Bershire Hathaway, Inc., has class A and class B common stock. One share of class A common stock is convertible (at the option of the shareholder) into 30 shares of class B common stock.

Some companies issue tracking stocks, which are a class of shares tied to the performance of a part of the business of the company. Atracking stock is a separate class of stock that tracks the performance of a part of a business within a company. General Motors was the first company to issue this type of share in 1984 and 1985 for its subsidiaries Electronic Data Systems and Hughes Electronics. In 1999, Donaldson, Lufkin & Jenrette (ticker symbol DLJ) issued a tracking stock for its Internet brokerage business DLJ Direct. The Internet brokerage company competed with DLJ for business; this created a potential conflict for the board of directors of DLJ, which served both sets of shareholders. Despite the potential conflicts when the same board of directors serves two sets of shareholders with different interests, several companies (such as General Electric Co., Walt Disney Co., and DuPont Co.) have issued tracking stocks. The other disadvantage for shareholders is that some tracking stocks do not come with voting rights.

The advantages of tracking stocks are that companies retain certain tax advantages, and the tracked businesses are connected to their less risky parent companies. Tracked businesses have the necessary room to conduct their business operations and also have the support of their parent corporations.

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