Share Classes

For technical documentation, please see MezzShares, CommonShares, and PreferredShares

Shares in Mezzanine are similar to those off-chain: they are used in shareholder governance and may be distributed assets in the event of a company's liquidation or acquisition. There are two types of shares in Mezzanine:

1. Common Shares

2. Preferred Shares

There are notable differences between the two:

• There is only a single common shares contract in an organization's capital stack. In contrast, a Mezzanine organization can have multiple classes of Preferred Shares with differing attributes and seniority.

• The voting weight of common shares is one. The voting weight corresponds to the number of votes that each share has in shareholder governance. Preferred Shares can have bespoke voting weights, allowing them to have more or less voting power than the common shares.

• Preferred Shares keep track of a liquidation preference value. This value is the amount of the denomination asset per share that is distributed to shareholders during liquidation before the firm's assets are distributed pro-rata to all equity owners. Preferred shares do not have to have liquidation preference value. Once a share class is created, the liquidation preference value is immutable and cannot be increased or decreased. A shareholder's liquidation preference is the product of their balance multiplied by the liquidation preference value.

  • For example, assume that company Foo's denomination asset is USDC. Foo has 1,000 USDC and no debt. It also has Preferred Shares with a liquidation preference value of 2, and Alice is the only Preferred shareholder with 100 shares. Foo also has 100 common shares, where Bob is the sole shareholder. During liquidation, Alice will receive 2 * 100 = 200 USDC as her liquidation preference. The remaining 800 USDC will be distributed between the 200 common and preferred shares, such that Alice and Bob both receive 400 USDC. In total, Alice receives 600 USDC.

The process of issuing new shares follows two steps:

1. The authorization of shares by shareholder governance

2. The issuance of those shares by the organization's board of directors

The board of directors is unable to issue shares that have not been authorized. Once issued, the number of authorized shares is decreased. For example, if company Foo has 1,000,000 authorized common shares and issues 100,000, it will have 900,000 authorized common shares remaining. Authorization occurs per share class. If 100,000 common shares are authorized, it does not correspond to the number of preferred shares that are authorized.

Common shares will be added to the organization's capital stack upon a company's creation. The individual(s) who create the company can also dictate an initial number of authorized common shares.

Shares can be issued to any account. Most frequently, shares will likely be issued to the Treasury, from which they can be spent by the organization's departments and modules. Like with any ERC20, the spending of shares by a module or department must be approved by its ancestors.

For the sake of simplicity, the Mezzanine team decided that Mezzanine organizations should only have a single type of common shares. However, future versions of the protocol can easily support multiple classes of common shares with differing voting weights.