Knowledge center Blog Home

Equilar Blog

---

An Important Factor to Keep in Mind for IPOs – Stock Structure

January 21, 2015

---

The Stock Structure Debate

A recent article by Equilar highlighted some of the key executive compensation and governance considerations for companies undergoing initial public offerings (IPOs).

The past two years have produced a large number of U.S. companies that have undergone IPOs and the market appears poised for more during the first quarter of 2015. Companies deciding to go public receive numerous benefits in bringing their enterprises to market, but also face certain challenges that correspond to becoming a publicly traded company.

At the outset, companies are required to start filing regulatory documents with the Securities and Exchange Commission. Along with these new disclosure requirements, there are various compensation and governance decisions that companies must make in conjunction with their public offerings. One of the more scrutinized decisions, concerns the structure of common stock.

Single Class Stock Structure Versus Multiple Class

The choice between a single class stock structure and a multiple class stock structure has become a hotly contested issue in corporate governance. While institutional investors have opposed multiple class stock structure implementations behind a “one-share, one-vote” belief, several influential technology companies including Google, Facebook, LinkedIn and Zynga have adopted them in recent years in order to allow control to remain with a concentrated set of shareholders.

Tableau Software is an example of a technology company that went public in 2013 and also adopted a multiple class stock structure. Although technology companies often receive the most attention for these decisions, they are not the only industry establishing multiple classes of stock.

Companies within the real estate sector (Re-Max Holdings) as well as the utilities sector (NRG Yield) have also chosen to create multiple class stock structures as they became publicly traded in 2013.