During Meta’s earnings conference call Wednesday, the company revealed that its board of directors had approved a new class of non-voting shares, called Class C common stock. The shares give the holder an ownership stake but no voting rights on company decisions. This course takes effect in January. Meta says it will use the shares to raise capital, pay employees and make acquisitions — including its costly investment in AI — while maintaining the current voting structure that favors its founder and CEO, Mark Zuckerberg, who controls about 60% of the vote.
However, the New York Times now reports that there is another reason for this new class: to help Zuckerberg pay for California’s proposed “billionaire tax,” if voters approve it. Since the new shares carry no voting rights, he could sell some of them to cover the tax without giving up voting control.
Proposition 40, authored by Berkeley tax law professors and sponsored by California’s largest healthcare union (SEIU United Healthcare Workers West), would impose a one-time 5% wealth tax on the net worth of several hundred California billionaires who primarily live in the state. Supporters say the policy could generate as much as $100 billion over five years, most of which would be used to fund the state’s health needs with the rest going to food aid and education.
The Times also reports that Zuckerberg pressed Meta’s board to come up with a plan to protect it from the tax. According to the newspaper, he told board members in September that if they couldn’t reach an agreement, he would put his Palo Alto property up for sale, potentially sparking a media storm. Shortly after, the shareholding plan came to fruition, the newspaper writes.
The Times report is based in part on a recent SEC filing made by Meta, which documents concerns about Proposition 40 and how it informed the discussions that led to the new share class.
The filing says that as early as July, Zuckerberg was discussing the billionaires tax with board members. The topic came up in additional meetings and communications throughout this month and August.
The filing also describes how the plan would work. Meta is creating a new class of non-voting shares, called Class C, and will offer shareholders one for each Class A or Class B share they own. The company calls this a one-time stock dividend and says it should result in a two-for-one stock split. The dividend “will not change the voting power of any shareholder,” Meta says.
That’s where Proposition 40 comes in. The filing states that the dividend “will allow Mr. Zuckerberg to immediately sell or transfer up to 20% of the Class C common stock he receives in the dividend, representing 10% of his aggregate economic ownership interest in the Company, for any reason, including so that he may pay his potential tax liability under California Proposition 40, if enacted into law, without affecting its majority control. Since the dividend is one-for-one, half of its shares after dividend will be Class C, so the 20% cap is equivalent to 10% of its total economic ownership.
When contacted by TechCrunch for comment, Meta referred us to a quote included in its recent earnings press release that reiterates that part of the motivation for creating the stock was to keep Zuckerberg on board: “The Special Committee affirmed its belief that it was important for Mr. Zuckerberg to continue to lead the Company from California, particularly because it was crucial that Mr. Zuckerberg remain in close coordination with the Company’s management and in close proximity to Meta Superintelligence Labs.
It is estimated that Zuckerberg would have to pay up to $11 billion in this tax.
Prop 40 has particularly irked many of Silicon Valley’s most prominent businessmen. Google co-founder Sergey Brin campaigned aggressively against the measure, even spending a small fortune to try to defeat it. Other business leaders and critics of the proposal have slammed it online, with many saying it amounts to economic suicide for California, leading to a flight of capital from the state. However, as Meta’s new policy appears to show, the state’s mega-corporations and the people who run them have creative ways to deal with the tax, should it materialize.
“Looks like the billionaires will stay and find a way to pay the tax,” Democratic U.S. Rep. Ro Khanna, a staunch supporter of the tax, wrote on X after news of Meta’s strategy spread online. “If we pass Proposition 40, poor California children will be able to benefit from health care,” he added.
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