The key facts
- Meta approved Class C non-voting shares: a 1:1 dividend, equivalent to a 2:1 split, taking effect in January
- Zuckerberg will be able to sell up to 20% of the Class C shares he receives (10% of his economic stake) while keeping majority voting control
- Proposition 40 is a one-time 5% wealth tax; by estimates, Zuckerberg could pay up to $11 billion
The new share class and its official purpose
On its earnings call on Wednesday, Meta announced that its board of directors had approved a new class of non-voting shares — Class C common stock — taking effect in January. The company says it will use these shares to raise capital, pay employees, and make acquisitions, including the costly expansion into AI, while preserving the current voting structure under which Zuckerberg controls about 60% of the votes.
The tax-related reason
According to the New York Times, the new share class has another purpose as well: to help Zuckerberg pay California's 'billionaire tax' if voters approve it. Since the new shares carry no votes, he will be able to sell some of them without losing voting control. The Times partly relies on Meta's recent SEC filing, which describes concerns around Proposition 40 and their role in the discussions that led to the creation of the new share class.
What Proposition 40 is
Proposition 40, drafted by Berkeley tax law professors and backed by California's largest healthcare union, SEIU United Healthcare Workers West, would impose a one-time 5% wealth tax on several hundred California billionaires, most of whom live in the state. Supporters argue the measure could raise up to $100 billion over five years: most of it would go to healthcare, with the rest to food assistance and education. By available estimates, Zuckerberg would have to pay up to $11 billion.
Details of the scheme from the SEC filing
According to the filing, discussions of the tax between Zuckerberg and board members had been going on since July and continued into August. Meta will create Class C and issue shareholders one such share for each Class A and Class B share — the company calls this a one-time stock dividend, equivalent to a 2:1 split, which 'will not change any shareholder's votes.' The dividend 'will allow Mr. Zuckerberg to immediately sell or transfer up to 20% of the Class C shares he receives, representing 10% of his total economic interest, for any reason, including payment of a potential Proposition 40 tax, without affecting his majority voting control.' Since the dividend is issued one-to-one, half of his shares after it will be Class C, so the 20% limit equals 10% of his entire stake.
Pressure on the board
The Times also reports that Zuckerberg pressured the board of directors, demanding a plan to protect against the tax: in September he told board members that if no agreement could be reached, he would put his Palo Alto home up for sale, which could trigger a media scandal. Shortly afterward, the newspaper writes, the share plan emerged.
Reaction
In a comment to TechCrunch, Meta referred to a quote from the earnings press release: the special committee considered it important that Zuckerberg continue to lead the company from California, remaining in close coordination with management and near Meta Superintelligence Labs. Proposition 40 has drawn discontent from many prominent Silicon Valley entrepreneurs: Google co-founder Sergey Brin actively campaigned against the measure, spending significant sums on its defeat; critics call it California's 'economic suicide,' leading to capital flight. Democratic Congressman Ro Khanna, a supporter of the tax, wrote on X: 'It looks like the billionaires will stay and find a way to pay the tax. If we pass Prop 40, California's poor children will get healthcare.'
