Meta disclosed during Wednesday's earnings call that the board had authorized a new category of non-voting common stock, Class C. The shares provide ownership rights without votes on company matters. The new stock class becomes effective in January. Meta says the shares will support fundraising, employee compensation and acquisitions, including Meta's costly expansion into AI. Meta says the arrangement will preserve the existing voting structure, under which founder and CEO Mark Zuckerberg controls around 60% of votes.
The New York Times reported that the stock class also aims to help Zuckerberg pay California's proposed billionaire tax if voters approve the measure. The non-voting shares could allow Zuckerberg to sell stock to cover the tax while retaining voting control. Estimates put Zuckerberg's potential tax bill at as much as $11 billion.
Proposition 40 would impose a single wealth-tax charge of 5% on the net worth of several hundred billionaires whose primary residence is California. Berkeley tax law professors drafted the proposal. SEIU United Healthcare Workers West, California's largest healthcare union, sponsors the measure. Supporters say the tax could raise up to $100 billion over five years. Most proceeds would fund California's healthcare needs, with the remainder supporting food assistance and education.
The New York Times reported that Zuckerberg pushed Meta's board to devise a way to protect Zuckerberg from the tax. The newspaper reported that Zuckerberg told board members in September that Zuckerberg would put the Palo Alto property up for sale without an agreement. A sale could potentially trigger intense media attention. The New York Times reported that the stock proposal emerged shortly afterward.
Meta's recent SEC filing partly underpins The New York Times' reporting and documents how concerns about Proposition 40 shaped discussions about the stock class. The filing says Zuckerberg discussed the billionaire tax with board members as early as July. The filing records further meetings and communications about the tax during July and August.
The filing says Meta will distribute one Class C share to shareholders for each Class A or Class B share held. Meta describes the distribution as a one-time stock dividend that should function as a two-for-one stock split. Meta says the dividend will leave every shareholder's voting power unchanged. The filing says Zuckerberg may immediately sell or transfer up to 20% of the Class C shares received through the dividend for any purpose. The filing explicitly includes paying any liability under Proposition 40, if enacted, without reducing Zuckerberg's majority voting control. The permitted amount equals 10% of Zuckerberg's total economic stake in Meta. The one-for-one distribution means Class C shares will account for half of Zuckerberg's shares after the dividend.
Meta responded to a request for comment by referring to a statement in Meta's recent earnings release. The statement says Meta's Special Committee considered Zuckerberg's continued leadership from California important. The committee cited the need for Zuckerberg to coordinate closely with management and remain near Meta Superintelligence Labs.
Google co-founder Sergey Brin has campaigned forcefully against Proposition 40 and spent substantial money trying to defeat the measure. Other business leaders and critics have attacked the proposal online, with many claiming the tax would devastate California's economy by driving capital out of the state. However, Meta's approach appears to show that California's largest companies and business leaders have inventive options for addressing the tax if enacted.
Democratic U.S. Representative Ro Khanna, an outspoken supporter of the tax, reacted after Meta's strategy circulated online. Khanna wrote that billionaires appeared likely to remain in California and find ways to pay the tax. Khanna also wrote that approving Proposition 40 could provide healthcare for poor children in California.
Meta Introduces Non-Voting Shares to Address California's Proposed Billionaire Tax
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Summary
Meta has authorized a new class of non-voting shares to help Zuckerberg manage the risk-to-reward ratio of potential tax liabilities under California’s proposed billionaire tax. The Class C shares will take effect in January, allowing Zuckerberg to sell up to 20% of his holdings while maintaining control. The move aligns with support and resistance levels in his long-term strategy, as outlined in a recent SEC filing. Zuckerberg first discussed the tax with the board in July, ahead of the November vote on Proposition 40.
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