Meta disclosed during the financial report conference call on Wednesday that the company's board of directors has approved a new class of shares without voting rights, known as Class C common stock. This class of shares grants ownership to the holders but does not confer voting rights in company decision-making. This class will take effect in January.
Meta indicates that this stock will be used for financing, employee compensation, and mergers and acquisitions, including the company's substantial investments in the field of artificial intelligence, while maintaining the current voting structure. The existing structure is favorable to the company's founder and CEO, Mark Zuckerberg, who currently holds approximately 60% of the voting rights.
However, according to a report by The New York Times, there is another reason for this new share class: to help Zuckerberg pay the relevant taxes after the proposed “billionaire tax” in California is passed, while not losing control of Meta. Since these new shares do not carry voting rights, he can sell some of them to pay the taxes without giving up control over voting rights.
This proposal, named Proposition 40, was drafted by a tax law professor from Berkeley and is supported by SEIU United Healthcare Workers West, the largest healthcare union in California. The proposal would impose a one-time 5% wealth tax on hundreds of billionaires who primarily reside in California. Supporters claim that this policy could raise up to $100 billion over five years, with the majority of that amount to be used to meet the state's healthcare needs, and the remaining funds to be allocated for food assistance and education.
The New York Times also reported that Zuckerberg urged the board of directors of Meta to come up with a plan to protect him from this tax impact. According to the newspaper, he told the board members in September that if no consensus could be reached, he would put his property in Palo Alto up for sale, which could trigger a media storm. Not long after that, this stock plan emerged, the report stated.
The reporting in this newspaper is based on a document recently submitted by Meta to the U.S. Securities and Exchange Commission (SEC). The document records concerns regarding Proposition 40, as well as how these concerns influenced the discussions that led to the creation of a new category of shares.
The document states that as early as July, Zuckerberg had discussed this billionaire tax with the board members. Subsequently, during additional meetings and communications in July and August, this topic was mentioned again.
The document also explains how the plan will operate. Meta will create a new type of share without voting rights, known as Class C shares, and issue one of these shares for each Class A or Class B share held. The company describes this as a one-time stock dividend, stating that its effect should be equivalent to a 2-for-1 stock split. Meta indicates that this dividend “will not change the voting rights of any shareholders.”
This is associated with Proposition. The document states that this dividend "will allow Mr. Zuckerberg to immediately sell or transfer up to 20% of the Class C common shares he receives from the dividend, which is equivalent to 10% of his total economic interest in the company. This amount can be used for any purpose, including paying his potential tax liabilities after Proposition in California finally becomes legal, without affecting his majority voting control." Since the dividend is distributed at a 1:1 ratio, half of his shares after the distribution will be Class C shares, therefore the 20% limit is equivalent to 10% of his total economic interest.
When TechCrunch sought confirmation from Meta, the company cited a passage from its latest financial report press release, reiterating that one of the motivations for establishing this stock category was to keep Zuckerberg around: 'The special committee confirmed that it believes it is very important for Mr. Zuckerberg to continue to lead the company from California, and one of the reasons is that Mr. Zuckerberg must maintain close coordination with the company's management and stay in close proximity to Meta Superintelligence Labs.'
It is estimated that Zuckerberg may need to pay as much as $11 billion in taxes for this matter.
Proposition Obviously, this has also angered many of Silicon Valley's most prominent business figures. Sergey Brin, co-founder of Google, has actively campaigned against the proposal, even spending a considerable amount of money to try to prevent it from passing. Other business leaders and critics of the proposal have also expressed their opposition online, with many saying that it is tantamount to economic suicide for California and will lead to a drain of capital. However, as the new policy Meta demonstrates, if this tax measure does come into effect, large companies in the state and their executives seem to have ways to cope with it as well.
“It seems that billionaires will stay and find a way to pay their taxes,” wrote U.S. Democratic Representative Ro Khanna on X after the related news spread online; he is also a public supporter of this tax measure. “If we pass Prop, poor children in California will be able to receive healthcare,” he added.
