What is Class F common stock?

April 23, 2009

Adeo Ressi, the founding member of The Funded, recently announced the establishment of The Funded Founder Institute.

The Founder Institute helps founders launch innovative companies by providing training, services, and company-building assignments, such as incorporating the business, filing provision patents, and setting up books and records. The Institute offers a four month program, called a Semester, hosted initially in the Bay Area and then expanding to locations around the world. The program participants, the Founders, receive extensive training in weekly sessions overseen by three Mentors – two seasoned CEOs and one domain expert for each topic.

The driving beliefs behind the Institute are that (1) great founders are often overlooked by the current entrepreneurial ecosystem, and that (2) innovative startups have a dramatic positive effect on the global economy. Startup companies consume resources intelligently, put people to work in efficient ways, and produce market driven products at lower costs. Helping smart people start new companies should, in fact, help the global economy.

The Founder Institute recently published a sample certificate of incorporation that Adeo used when incorporating the Founder Institute, Incorporated.  Adeo was focused on creating mechanisms to protect founders who may lose control of the companies they created after raising financing from investors.  The current customary form of venture financing documents has not changed much since with mid-1970s when they first became widely adopted in Silicon Valley.

Therefore, Adeo wanted to include a number of extremely founder-friendly provisions in the certificate of incorporation for companies formed in connection with the Founder Institute.  These provisions include a special class of super-voting common stock, called “Class F” common stock, which is named for “Founders.”

  • Voting.  The COI includes Class A common stock, which has one vote per share, and Class F common stock, which has 10 votes per share.  Companies such as Google, Martha Stewart Living Omnimedia, Broadcom and others have super-voting common stock.  Super-voting common stock is sometimes seen in companies where founders or a family wish to maintain control of a company after obtaining outside investment.
  • Protective provisions.  Similar to protective provisions in a Series A preferred stock financing, there are certain fundamental actions that cannot be taken without the consent of holders of more than 50% of the Class F common stock.  The Class F common stock protective provision basically provides:

As long as any of the Class F common stock is outstanding, consent of the holders of at least 50% of the Class F common stock will be required for any action that (i) alters any provision of the certificate of incorporation or the bylaws if it would adversely alter the rights, preferences, privileges or powers of or restrictions on the Class F common stock; (ii) changes the authorized number of shares of Class F common stock; (iii) authorizes or creates any new class or series of shares having rights, preferences or privileges with respect to dividends or liquidation senior to or common stock on a parity with the Class F common stock or having voting rights other than those granted to the Class F common stock generally; (iv) approves any merger, sale of assets or other corporate reorganization or acquisition, or the liquidation or dissolution of the Company; (v) increase the size of the board; or (vi) declares or pays any dividend or distribution.

  • Directors.  Holders of Class F common stock are allowed to elect one director.  The Class F director has 2 votes per director, as opposed other directors, who have one vote. Section 141(d) of the Delaware General Corporation Law permits a company to have directors with more than one vote per director. This may address a situation where there is a desire to keep the size of a board small, but ensure that board “control” is maintained by a particular group of stockholders.

The Class F common stock and the Class A common stock otherwise participate equally with respect to dividends and distributions and other economic rights.  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.

Whether any of these provisions will survive after a typical Series A venture financing depends on the negotiating position of the parties.  At a minimum, people like Adeo and blogs like Venture Hacks are educating founders about financing terms that may be detrimental to founders.

[Update:  Class F common stock is discussed in Techcrunch, VentureBeat, PE Hub and the WSJ.  In addition, Marc Andreessen has a blog post strongly supporting dual class stock structures in certain circumstances.]


  • http://brokensymmetry.typepad.com Michael F. Martin

    Any comment on how F is different from FF?

  • http://www.startupcompanylawyer.com Yokum

    @Michael – Entirely different concept. Series FF enable founders to sell their stock in a venture financing. Class F stock allows founders to maintain control of a company.

  • http://startupcfo.ca startupcfo

    These terms could survive an angel round perhaps since angels and founders are aligned when it comes to the dilution they can experience from VCs over the life cycle. Still, I don't see any VC taking these. And I think almost any startup that uses them and approaches VCs will see the VCs walk away (even if they like everything else about the deal)

  • Ken Brabender

    Why would a company convert my Class A stocks to Class F stocks? Is there a benifit to me?

  • http://www.startupcompanylawyer.com Yokum

    @Ken – Don't understand the question. Class F will generally be issued at incorporation. Class F can be converted to Class A, but not vice versa.

  • stuarteichert

    Let's say the founders capitalize their C corp by buying their class F common stock, but then 6-8 months later the company needs more money to continue operating. Should the founders simply loan the additional capital needed to the company via a promissory note (at reasonable interest, etc., etc.) or should they be buying additional class F common stock from the company? My gut says promissory note, but figured I should ask.

  • http://www.startupcompanylawyer.com Yokum

    @stuart – Most founders loan the money to the company.

  • startup founder

    I'm planning to incorporate a c corp for my website venture. I'd like to use class F stock during incorporation. Can you tell me how I go about it? Where do I specify that my corporation uses class F stock?


  • http://www.startupcompanylawyer.com Yokum

    @startup founder – the form of Class F certificate of incorporation is available on the TheFunded Founder Institute web site. You will need an experienced attorney to assist you as it is not a do it yourself project.

  • Anil

    AT the time of formation, how do you price Founder Class F Common Stock? Same as the $0.0001 per share that is typically the price paid by founders for common stock, or something higher? And, where we have Common F, ho wdo you price the Common A shares, $0.0001 per share?

  • http://www.startupcompanylawyer.com Yokum

    @Anil – Theoretically, if issued on the same day, the Class F should be priced at higher than the Class A. The Class F is typically issued at some nominal price, like $0.0001 per share.

  • http://www.startupcompanylawyer.com Yokum

    @Anil – Theoretically, if issued on the same day, the Class F should be priced at higher than the Class A. The Class F is typically issued at some nominal price, like $0.0001 per share.

  • StartupCEO


    Can a Class F be created for an “S Corporation”? My understanding of S corps is that you can only have one class of stock, but I've read where you can have multiple classes of common as long as one does not have a liquidation preference over another? Our business may or may not go the VC route, so we're interested in the tax benefits of s corp now, and will covert to c if we decide to raise venture money.

  • http://www.startupcompanylawyer.com Yokum

    @StartupCEO – Class F and regular common stock (Class A) are acceptable in an S corp. Voting and control differences do not constitute a separate class for S corp purposes. An economic difference, like differences in liquidation preferences would constitute a separate class.

  • sylvestor811


    I want to know some facts from the VC Angle:
    1. How will this change of accepting Class F stock affect VC's if they have such high voting right & board rights. What will be the role of a VC who has a board seat if the founders blindly keep passing all the bills just because they have more than 50% control at all times.
    2. How can we have even play
    3. I feel Class F is too founder friendly, how can we alter the voting power & board votes ratio to be in such a way that can have a level playing field
    4. Understand that the CEO's are getting laid off with out reason. We could have a founder friendly clause saying that he will not be sacked for a period of time rather than making it so founder friendly
    5. In a classic example where a VC invests $4MM of a $10MM company for 40% stakes & if the company gets sold for $100MM. How much will the VC make out of it if we go by considering the Class F stock

  • Pingback: Is Your VC Founder Friendly? « Steve Blank()

  • Sand

    Are series F benefits somewhat oversold because whoever comes up with real money is going to cram down whatever terms they want — likely gutting those benefits?

    The Googles of the world can resist that, the rest of us can't without rolling the dice on continued existence.

  • Francis

    Is this an all, or nothing, move? Do all founders shares automatically become Class F shares, regardless of who they are given to? Or, can the 'founder' just convert their personal shares to Class F shares?

  • http://www.startupcompanylawyer.com Yokum

    @Francis – Class F should be implemented when the company is incorporated and before shares are issued.