California voters will decide Nov. 3 whether the state’s billionaires must pay a one-time 5% tax on their net worth. Some of them have already left, like Peter Thiel and Google co-founders Larry Page and Sergey Brin. They join seven billionaires so far who have publicly left the state, taking about $540 billion, or 30% of the state’s billionaire wealth. Meanwhile, others, like Jensen Huang, remain.
Until now, Meta’s Mark Zuckerberg seemed to want, like Huang, to stay in the state where his company is headquartered. But Meta’s new SEC filing released this week shows that this is partly due to the key difference between owning a company and controlling it.
What he owns and what he controls
Ownership is part of the value of a business. Control is a part of his votes. For most shareholders, they are the same because each share gives the right to one vote. At Meta, they are not.
Zuckerberg mainly owns Class B shares, which each carry 10 votes. Class A common stock carries one. So out of every $100 of Meta’s value, about $13 belongs to him, but out of 100 votes, about 61 belong to him, according to a Meta filing released Wednesday. This majority allows him to elect the entire board of directors and decide almost all shareholder votes.
A wealth tax would charge the first amount – and to pay it, Zuckerberg would have to sell shares, thereby losing control. When Class B stock is sold, it turns into one-vote Class A stock, so each sale to pay the tax would reduce its control.
According to the filing, Meta’s board feared this loss of control.
According to the committee of independent directors who negotiated with Zuckerberg, they felt he was “not about to lose voting control.” But he cited the wealth tax as one of the main reasons that could change, saying it “has the most significant impact because it would force man to sell shares, or at least borrow against them.” The filing says he “could become liable for a significant, multibillion-dollar tax payment based on his ownership of stock in the company.”
Zuckerberg also argued that ownership and control need not be aligned. At an Aug. 26 meeting, he “questioned why maintaining the status quo with respect to the relationship between his voting control and his economic interest in the company should be a consideration for the special committee, citing precedent in other companies where relatively low economic ownership nonetheless allowed control of the founder’s vote,” the filing said.
That’s why the committee in August proposed a dividend of new non-voting shares that would be payable “if, and only if, California Proposition 40 becomes law and a tax payment by Mr. Zuckerberg becomes due and payable,” sized to cover its bill. Zuckerberg wanted more, saying “he did not want to engage in lengthy additional negotiation processes in the future if taxes similar to California’s Proposition 40 were proposed in other jurisdictions.”
As part of the final agreement, which Fortune reported Wednesday, each shareholder receives one non-voting Class C share for each share he or she owns. The committee wrote that Zuckerberg could immediately sell 20% of his new shares, “representing 10% of his overall economic interest in the company, for any reason, including so that he can pay his potential tax liability under California Proposition 40, if enacted into law, without affecting his majority control.” Because he draws a $1 salary, the committee said, the tax would otherwise leave him “in effect paying to serve as CEO of the company while residing in California.”
The board didn’t want a remote CEO
Unlike the billionaires who left, Zuckerberg runs a company whose board wanted him in the building. In July, the committee said it was “crucial that Mr. Zuckerberg remains in close coordination with the company’s leadership and in close proximity to Meta Superintelligence Labs.” The company said it “is aware of the challenges the Company faced during the COVID-19 pandemic, when Mr. Zuckerberg was unable to be physically present with the Company’s management team.”
On September 6, Zuckerberg told the committee that he “should begin taking steps by mid-September to establish residency outside of California by mid-October.” The final agreement commits him to stay in California, or wherever Meta is headquartered, for eight years, “barring significant unforeseen circumstances.”
Meta said Fortune the new title mainly aims to finance its AI spending. In its earnings release, the company said the new class would “provide Meta with the ability to fund its growth and help the company remain a leader in the face of fierce competition both domestically and internationally.” He credits Zuckerberg for driving Meta’s shares up more than 1,700% since its IPO, compared with about 495% for the S&P 500, and says the shares will “continue the founder-led model that has driven the company’s success since its inception.”
“We created this new class of stock with the goal of creating publicly traded, non-voting shares usable for capital raising, employee compensation, acquisitions and other general corporate purposes while preserving the voting rights of existing Class A and B shareholders,” Chief Financial Officer Susan Li said on Wednesday’s earnings call. “We believe this share class will maintain our founder-led structure. It will expand our financing tools and give us the flexibility to invest as part of the unprecedented momentum we are seeing in every part of our business, driven by AI.”
The filing said management’s forecasts “showed the need for the company to raise hundreds of billions of dollars over a multi-year period beginning as early as fall 2026.” He also acknowledges that the new actions “could significantly extend the duration of Mr. Zuckerberg’s voting control over our company.” Class A shareholders did not vote because Zuckerberg “has the ability to unilaterally approve” the change.
Gn bussni
