Share Class
A category of stock with specific rights; common shares and each series of preferred are separate classes.
Definition
A share class is a category of stock with defined rights and privileges. Startups typically have at least two classes: common stock (held by founders and employees) and preferred stock (held by investors). Each funding round creates a new series of preferred (Series A Preferred, Series B Preferred, etc.), each with its own terms. Different classes can have different voting rights, liquidation preferences, and conversion terms.
Why it matters
As an employee, you hold common stock, which sits at the bottom of the preference stack. Understanding share classes helps you see why the 409A value of your common shares is lower than what investors paid for preferred, and why preferred holders get paid first in an exit.
Example
A company has Common Stock, Series A Preferred, and Series B Preferred. In a $50M exit, Series B gets paid first ($20M), then Series A ($15M), then common splits the remaining $15M.