Meta creates nonvoting shares so Zuckerberg can pay a potential tax without losing power

Mark Zuckerberg is estimated to owe as much as $11 billion if California voters approve a new wealth tax, but a new corporate strategy aims to let him pay that bill without surrendering his grip on Meta. The company announced on Wednesday that its board has approved a new category of shares known as Class C common stock. These shares provide an ownership stake in the business but carry no voting rights. The change is set to take effect in January, and Meta states it will use the new stock for capital raising, employee compensation, and acquisitions, including its significant investments in artificial intelligence.

According to a report from The New York Times, the primary driver behind this specific financial maneuver is to help Zuckerberg manage the financial impact of Proposition 40. This proposed measure would impose a one-time 5% tax on the net worth of wealthy individuals living in California. By creating a class of shares that do not count toward voting power, Zuckerberg could sell a portion of his holdings to cover the tax liability while still maintaining his current level of control over the company. He currently controls approximately 60% of the total vote at Meta.

The proposal, known as Proposition 40, was drafted by tax law professors at the University of California, Berkeley. It is being sponsored by SEIU United Healthcare Workers West, which is the largest healthcare union in the state. Supporters of the measure argue it could generate up to $100 billion over a five-year period. The revenue would primarily fund the state's healthcare needs, with remaining funds allocated to food assistance and education programs.

The New York Times notes that Zuckerberg actively pushed the board to develop a plan to shield him from the tax. In September, he reportedly told board members that if they could not reach a consensus on a solution, he would list his property in Palo Alto for sale. This action was expected to create a significant media reaction. Shortly after these discussions, the plan for the new stock class was finalized, according to the newspaper.

This reporting is supported by a recent filing with the U.S. Securities and Exchange Commission. The document outlines the timeline of internal discussions, indicating that Zuckerberg began discussing the billionaire tax with board members as early as July. The topic remained a focus during meetings and communications throughout July and August. The filing explains that the company will issue a one-time stock dividend, giving shareholders one Class C share for every Class A or Class B share they currently own. This effectively acts as a two-for-one stock split, though it does not alter the voting power of any existing shareholder.

The filing specifies that this structure allows Zuckerberg to sell or transfer up to 20% of the Class C shares he receives. Because the dividend is issued on a one-for-one basis, this amount represents 10% of his total economic stake in the company. The document states this can be done for any reason, including paying potential tax liabilities under Proposition 40, without affecting his majority voting control. This mechanism ensures that the sale of assets for tax purposes does not dilute his influence over corporate decisions.

Meta provided a statement to TechCrunch referencing a quote from its recent earnings press release. The company emphasized that a special committee believed it was essential for Zuckerberg to continue leading the company from California. The justification cited was his need to stay in close coordination with management and remain near the Meta Superintelligence Labs facility. This highlights the company's desire to keep its CEO geographically and operationally close to its core operations.

The proposed tax has sparked intense debate among business leaders in Silicon Valley. Sergey Brin, co-founder of Google, has campaigned aggressively against the measure, spending significant personal funds to try to defeat it. Other critics have argued that the tax could cause economic capital to leave the state. However, the actions taken by Meta suggest that major tech companies are finding creative ways to manage the financial impact. Ro Khanna, a U.S. Representative and vocal supporter of the tax, commented on the news on social media, suggesting that billionaires will remain in the state and find ways to pay, which he believes will help fund healthcare for children in California.

This development underscores the complex relationship between state tax policy and corporate structure. By separating economic ownership from voting rights through the new Class C shares, Meta has provided a pathway for its leader to meet financial obligations while preserving the status quo in corporate governance. The outcome of Proposition 40 will now be watched closely by investors and executives across the technology sector.