What is the difference between Berkshire Hathaway’s Class A and Class B shares?

The primary difference between Berkshire Hathaway Class A stock and Class B stock is one of price. Because of the price difference, Class B shares offer increased flexibility for investors and also provide a potential tax benefit. Warren Buffett has declared that the Class A shares will never experience a stock split because he believes the high share price attracts like-minded investors, those focused on long-term profits rather than on short-term price movements. As of May 2017, Berkshire Hathaway Class A (BRK-A) is trading for almost $246,000 a share.

In 1996, Buffett created Class B shares (BRK-B), offering investors the ability to invest in Berkshire Hathaway for, initially, one-thirtieth the price of a Class A share of stock. A 50-to-one stock split in 2010 sent the ratio to one-1,500th. Class B shares carry correspondingly lower voting rights as well. Buffet stated that the purpose of creating the Class B shares was to give smaller investors the opportunity to invest directly in Berkshire Hathaway, rather than only participating indirectly through mutual funds that mirror Berkshire Hathaway’s holdings.

One benefit of holding Class B shares is flexibility. If an investor owns just one share of Class A and is in need of some cash, the only option is to sell that single share, even if its price far exceeds the amount of capital the investor needs to access. In contrast, a holder of Class B shares can liquidate part of his or her Berkshire Hathaway holdings, just up to the amount needed to meet cash flow requirements. Another benefit of Class B is that its much lower price means that BRK stock can be passed to heirs without triggering the gift tax as passing Class A shares does.

One final difference is that Class A shares can be converted into an equivalent amount of Class B shares any time a Class A shareholder wishes to so do. The conversion privilege does not exist in reverse. Class B shareholders can only convert their holdings to Class A by selling their Class B shares and then buying the equivalent in Class A shares.

Soruce: Bloomberg
Trader I. Ivanov

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