Voting vs. Non-Voting Shares: Why the Difference Matters

Understanding the difference between voting and non-voting shares can be important for startup investors when looking at investment terms. In the private markets, the structure of share classes can have implications about control, governance, and value for investors. In this blog, learn more about voting shares vs. non-voting shares, some of the benefits and limitations of each, and key considerations for investors from the experts at MicroVentures.

Understanding Voting vs. Non-Voting Shares

Voting rights represent a shareholder’s entitlement to participate in corporate decision-making. Traditionally, these rights are exercised at shareholder meetings and may contribute to decisions such as the election of the board of directors, approval of major corporate actions like mergers or acquisitions, or other significant governance matters.

Owning voting rights can allow shareholders to influence the strategic direction of the company. Alternatively, non-voting shares can also provide entitlement to dividends but give investors no say in corporate decision making. Dual-class share structures also exist, which create both voting and non-voting classes.

Which Financial Instruments Enable Voting Shares?

So, which financial instruments have the ability to confer voting rights to shareholders? The primary financial instrument is common stock. However, not all common stock is created equal. Startups have the ability to issue multiple classes of common stock, typically designated as Class A (voting) and Class B or C (non-voting). It is important to note that in private companies, especially those seeking angel investors or venture capital funding, it is uncommon to issue non-voting common stock. Investors generally expect voting rights as a condition of their investment, due to the high risk and illiquidity associate with private market investments.

Beyond common stock, other financial instruments may enable voting rights under certain conditions. For example, convertible notes can provide voting rights after they have converted into equity, following a qualifying financing round or liquidity event. Upon conversion, the resulting equity shares are generally voting shares unless otherwise specified. Additionally, Simple Agreements for Future Equity (SAFEs) may allow the investor to purchase stock in a future equity round and do not confer voting rights until after conversion.

Which Financial Instruments Do Not Enable Voting Shares?

There are several financial instruments startups use that may not offer voting rights in order to preserve founder control or simplify capital structure. Non-voting common stock is a common example, although its use is more common in public markets or mature private companies rather than early-stage startups. Companies may also issue non-voting shares to employees through restricted stock units (RSUs) or stock options, which only confer voting rights upon exercise the issuance of actual shares. Options themselves typically do not carry voting or dividend rights until after they are exercised.

Differences Between Voting and Non-Voting Shares

When a company issues multiple classes of shares within the same broader instrument, such as Class A and Class B common stock, the differences extend beyond the presence or absence of voting rights. While both share classes may have the same rights to dividends and liquidation proceeds, the non-voting class may be defined by its governance exclusion. In some structures, non-voting shares may even be offered at a slight discount in order to compensate for the lack of control, with price differences typically ranging from 0% to 5%. However, in private markets, this discount may be less.

Key Considerations

For investors in private companies, understanding voting vs. non-voting shares when conducting due diligence can be important. The following are some key considerations:

Alignment of Control and Economic Interest

Investors should consider whether voting power aligns with long-term value creation. While founder control can help the execution of a long-term vision, it may reduce accountability and increase risk, showing the benefits of holding voting shares.

Liquidity and Exit Implications

Non-voting shares may be harder to sell in secondary markets due to their limited rights. Additionally, during an exit event such as a sale or initial public offering (IPO), the treatment of non-voting shares can vary. They may be converted to voting shares, or remain at a lower value to voting shares, potentially affecting any growth.

Information Rights and Protections

Investors should verify what rights, if any, accompany non-voting shares. While they may receive financial reports, they may lack veto rights over major corporate actions, leaving them at the mercy of decisions made by the controlling class of shareholders.

Final Thoughts

In private market investing, deciding to invest in voting or non-voting shares is not merely a financial calculation, but also a strategic assessment of risk, control, and alignment. While voting shares can provide governance, non-voting shares can represent a path to passive participation. Investors should consider the benefits and limitations of holding voting and non-voting shares when conducting due diligence and making investment decisions.

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Want to learn more about investing in startups? Check out the following MicroVentures blogs to learn more:

• Learning From Failed Startups
• Investing in Second-Time Founders
• Is There an AI Bubble?
• 2026 IPO Outlook

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The information presented here is for general informational purposes only and is not intended to be, nor should it be construed or used as, comprehensive offering documentation for any security, investment, tax or legal advice, a recommendation, or an offer to sell, or a solicitation of an offer to buy, an interest, directly or indirectly, in any company. Investing in both early-stage and later-stage companies carries a high degree of risk. A loss of an investor’s entire investment is possible, and no profit may be realized. Investors should be aware that these types of investments are illiquid and should anticipate holding until an exit occurs.