Meta Unveils Share Structure Change to Shield Zuckerberg From Potential Tax Bill

Meta has approved a new class of nonvoting stock, a move that could provide a path for its CEO, Mark Zuckerberg, to pay a potential new tax in California without relinquishing his control over the company. The creation of Class C common stock is intended to facilitate capital raising and other corporate activities, but its structure also provides a specific financial option for Zuckerberg.

According to reporting from the New York Times, this new stock class would allow Zuckerberg to sell shares to cover a potential tax liability under California’s proposed Prop 40, a ballot measure that would impose a one-time 5% wealth tax on several hundred billionaires residing in the state. This structure is designed to permit such a transaction without affecting his voting power. It has been estimated that the tax could cost him as much as $11 billion.

The creation of this new stock class comes amid ongoing discussions about Prop 40 and its potential impact on California’s wealthiest residents. The measure, drafted by Berkeley tax law professors and sponsored by the SEIU United Healthcare Workers West union, would apply to the net worth of billionaires who primarily live in the state. Proponents of the policy state it could raise as much as $100 billion over five years, with the majority of funds directed toward healthcare, and the remainder allocated for education and food assistance.

According to the New York Times, Zuckerberg told board members in September that if they could not reach a plan to address the proposed tax, he would list his Palo Alto property for sale. This report is partly based on a recent SEC filing from Meta that details the board’s deliberations surrounding the measure.

The filing states that discussions about the tax with board members began as early as July and continued through August. The document also outlines the plan for creating Class C stock. Meta will issue one Class C share for every Class A or Class B share held, in what the company describes as a one-time stock dividend that functions as a two-for-one stock split.

The filing further specifies that the dividend “will not change the voting power of any shareholder.” It states that the plan “will allow Mr. Zuckerberg to immediately sell or transfer up to 20% of the shares of Class C common stock that he receives in the Dividend.. for any reason, including so that he may pay his potential tax liability under California Proposition 40, if enacted into law, without affecting his majority voting control.” This would represent 10% of his overall economic stake in the company.

Meta has affirmed that it is important for Zuckerberg to continue leading the company from California. The proposed tax has faced opposition from some prominent figures in the tech industry, including Google co-founder Sergey Brin, who has campaigned against it. Critics online have claimed the measure could be detrimental to California’s economy, suggesting it could lead to capital flight from the state.

However, as Meta’s strategy appears to show, there are ways to comply with the proposed tax without giving up control. U.S. Representative Ro Khanna, a supporter of the measure, wrote on X, “Looks like billionaires will stay and figure out a way to pay the tax. If we pass Prop 40, poor California kids can have healthcare.”