What is Class F Stock?

Class F stock is founders stock that is a unique class of common stock, which was generated by the Funded Founder Institute. This type of stock has become sufficiently common that I feel the need to explain it as part of this general venture financing lecture series. In startup ventures, the corporation is likely to issue preferred shares to investors. These preferred shares offer numerous control and financial protections to investors.

Characteristics of Class F Stock?

The class F stock is similar to preferred shares in they they provide special voting and protective provisions that are favorable to founders.

• Voting - Generally, class F stock will have 10 votes per share, rather than 1 vote per share characteristic of traditional common stock. This is a super-voting characteristic and is common in companies where the founders highly value close control regarding outside equity investors.
• Protective Provisions - Regarding protective provisions, the class F stock may have any number of protective provisions common to preferred shares. Most commonly, the articles of incorporation or bylaws will require that certain shareholder actions require a majority vote by class F shareholders.
• Directors - The class F stockholders have authority to elect one director, who has 2 votes in comparison to the one vote of other directors.
• Participation - The Class F common stock and the Class A common stock otherwise participate equally with respect to dividends and distributions and other economic rights.
• Conversion - The Class F common stock can be converted into Class A at any time at the option of the holder, and will automatically convert if the holder dies or if the Class F common stock is transferred to someone other than another Class F holder or an entity for the benefit of a Class F holder.