BRK.A vs. BRK.B: Key Differences in Price, Voting, and More

Berkshire Hathaway, a conglomerate led by renowned investor Warren Buffett, offers two classes of shares: BRK.A and BRK.B. These share classes feature distinct characteristics, catering to different types of investors and providing insight into stock market dynamics.

Price Differences

The price disparity between BRK.A and BRK.B shares is one of the most striking distinctions. BRK.A shares, often called the “original” shares, are priced significantly higher than BRK.B shares because they have never been split, preserving their high per-share value. As of the latest data, BRK.A shares trade at several hundred thousand dollars each, reflecting Berkshire Hathaway’s substantial growth over the decades. In contrast, BRK.B shares were introduced in 1996 to provide a more affordable option for smaller investors, with a price point that is a fraction of BRK.A’s, typically in the hundreds of dollars.

This pricing strategy was intended to prevent the creation of unit trusts that would have allowed fractional ownership of BRK.A shares, which could have diluted control over the shareholder base. The price of BRK.B shares is approximately 1/1,500th of BRK.A shares, a ratio maintained through measures like the 50-to-1 split in 2010, further enhancing affordability.

Voting Rights

A key difference between the two share classes lies in their voting rights. BRK.A shares carry significant influence, granting one vote per share in corporate decisions. This ensures that holders of BRK.A shares have substantial control over the company’s governance.

In comparison, BRK.B shares provide 1/10,000th of a vote per share, reflecting the company’s intent to maintain primary control with BRK.A shareholders while allowing broader investor participation. This structure balances the interests of a diversified shareholder base while ensuring major decisions remain with those holding substantial stakes.

Conversion

BRK.A shareholders have the flexibility to convert their shares into BRK.B shares, a feature that can be advantageous for adjusting portfolios without leaving Berkshire’s ecosystem. This one-way conversion process allows high-value BRK.A shares to be exchanged for more liquid and accessible BRK.B shares, useful for liquidity needs or diversification strategies. However, BRK.B shares cannot be converted back into BRK.A shares.

From a tax perspective, this conversion does not trigger a taxable event under current U.S. tax laws, as it is treated as a like-kind exchange under Internal Revenue Code Section 1036. This ensures investors can make adjustments without immediate tax consequences. The fixed conversion ratio of 1:1,500 provides predictability for shareholders considering this option.

Liquidity

Liquidity is another significant distinction between BRK.A and BRK.B shares. BRK.B shares tend to be more liquid due to their lower price, attracting a wider range of investors and generating higher trading volumes. This increased activity results in tighter bid-ask spreads and greater price stability, making it easier for investors to buy or sell BRK.B shares.

In contrast, BRK.A shares are less frequently traded, partly because they are typically held by institutional investors or high-net-worth individuals with long-term investment horizons. This difference in trading behavior underscores the varied motivations of the investor bases for the two share classes.

Tax Implications

Tax considerations also differ between BRK.A and BRK.B shares, primarily due to their price and trading characteristics. The high valuation of BRK.A shares often results in larger unrealized capital gains for long-term holders, potentially leading to significant tax obligations when sold. Under current U.S. tax law, long-term capital gains are taxed at rates ranging from 0% to 20%, depending on income.

BRK.B shares, being more affordable and frequently traded, are often held for shorter periods, which can result in short-term capital gains taxed at ordinary income rates, up to 37%. Investors should carefully manage holding periods to optimize tax efficiency, particularly if planning to sell within a year of purchase. Additionally, BRK.B shares’ lower price makes them more practical for strategies like tax-loss harvesting, where underperforming assets are sold to offset gains elsewhere.

Estate planning poses another tax consideration. The high value of BRK.A shares can significantly impact the taxable value of an estate. Under federal estate tax law, estates exceeding $12.92 million in 2023 are taxed at rates up to 40%. Advanced planning, such as gifting shares or establishing trusts, may be necessary to mitigate this burden. BRK.B shares, with their lower price, offer more flexibility for gifting or wealth transfers, making them a practical option for estate planning. Understanding these tax implications is crucial for aligning investment decisions with broader financial goals.