Question

Rust Pipe Co. was established in 1994. Four years later the company went public. At that time, Robert Rust, the original owner, decided to establish two classes of stock. The first represents Class A founders' stock and is entitled to eleven votes per share. The normally traded common stock, designated as Class B, is entitled to one vote per share. The normally traded common stock, designated as Class B, is entitled to one vote per share. In late 2010, Mr. Stone, an investor, was considering purchasing shares in Rust Pipe Co. While he knew the existence of founders’ shares were not often present in other companies, he decided to buy the shares anyway because of a new technology Rust Pipe had developed to improve the flow of liquids through pipes. Of the 1,800,000 total shares currently outstanding, the original founder's family owns 52,525 shares.
Required:
What is the percentage of the founder's family votes to Class B votes?

Answer 1

Answer:

Rust Pipe Co.

The Percentage of the Founder's Family Votes to Class B  Votes:

= Founder's Family Votes / Class B Votes x 100 = 577,775/1,747,475 x 100 = 33.-6%

Explanation:

Total votes for the Founder's Family = 52,525 x 11 = 577,775

Class B votes = 1,747,475 (1,800,000 - 52,525) x 1 vote = 1,747,475

Founders of companies who want to go public but still retain control of the entity may decide to issue two or more classes of shares in order to allocate more voting rights to some classes than the others.

In this case, while the founder's family currently held 52,525 shares representing 29.2% of the total outstanding shares, in voting rights, the founder's family has 33.6% control.