Editor’s note: This is an educational explainer about how dual-class share structures generally work on stock exchanges such as the Tel Aviv Stock Exchange. It is general information, not investment advice, and does not describe any specific current event, company, or security.
A shareholder who owns 10 percent of a company’s equity might, in some structures, control more than half its votes. That gap between owning a slice of the profits and controlling the boardroom is not a loophole or an accident. It is a deliberate design feature built into certain listed companies, and it is formalized on the Tel Aviv Stock Exchange (TASE) through what is known as a dual-class, or dual-listed, share structure. Understanding how it works, and why regulators allow it, helps explain a recurring tension in equity markets between founders who want to keep steering the ship and investors who simply want a return on capital.
Two classes, one company
In a standard, single-class company, each ordinary share carries one vote and one claim on dividends and residual assets. A dual-class structure splits this bundle of rights into two (or occasionally more) share classes. One class, often labeled Class A or “ordinary shares,” is typically what trades on the open market and carries one vote per share. The other class, often held by founders, family groups, or early institutional backers, carries enhanced voting power, sometimes ten or more votes per share, while carrying essentially the same economic entitlement to dividends and liquidation proceeds as the publicly traded class.
On TASE, as on other exchanges that permit this structure (Nasdaq and the Hong Kong Stock Exchange are well known examples internationally), the mechanics are disclosed in the company’s articles of association and in listing documents. The high-vote shares are usually not freely tradable on the exchange, or trade in much thinner volume, which is part of why the structure persists: it lets a controlling group raise outside capital by selling the low-vote class to the public without diluting its command of shareholder votes.
Why companies and regulators allow it
The rationale companies give is continuity. A founding group that believes it has a long-term strategic vision, particularly common in technology, family-controlled conglomerates, or companies emerging from a turnaround, may argue that dispersed public shareholders with short investment horizons could push for decisions that undermine long-run value, such as resisting a takeover bid that a quarterly-focused market might otherwise welcome. Locking in voting control, the argument goes, insulates management from that pressure and allows patient, long-horizon decisions.
Exchange regulators, including Israel’s Securities Authority, permit the structure but typically attach guardrails. These commonly include sunset clauses that convert high-vote shares into ordinary shares after a fixed number of years or upon a founder’s death or departure, minimum free-float requirements for the publicly traded class, and enhanced disclosure obligations so that investors know exactly what voting ratio they are buying into before they place an order. TASE listing rules, like those of other exchanges permitting dual-class shares, generally require this structure to be clearly flagged in prospectuses and ongoing disclosures, precisely because the gap between economic and voting rights is the central fact a prospective shareholder needs to price into the stock.
What it means for the ordinary investor
For someone buying the publicly traded class, the practical consequence is straightforward: dividends, and in principle the economic value of the company, are shared proportionally with the controlling class, but influence over strategic decisions, such as electing directors, approving mergers, or blocking a hostile takeover, remains concentrated elsewhere. This is sometimes described as a “control premium” accruing to the high-vote class, since that block can command outsized influence, or even a takeover premium, that ordinary shareholders cannot access on the same terms.
This does not mean the structure is inherently harmful to minority shareholders. Governance codes generally require independent directors, related-party transaction approvals, and fiduciary duties that apply regardless of the share class in question. But it does mean that anyone evaluating a dual-class listing is buying a different bundle of rights than a single-class share implies, and the exchange’s disclosure rules exist specifically so that distinction is visible before, not after, the investment is made.