Meta Creates a New Stock Class to Sidestep California’s Wealth Tax

Meta has unveiled a plan to create a new type of stock that would allow Mark Zuckerberg to pay for a proposed California tax on billionaires while retaining his control of the company. The tech giant's board has approved a new class of nonvoting shares, known as Class C common stock, which is set to take effect in January. These shares would provide ownership stakes but no say in company decisions. Meta stated it would use the stock for raising capital, employee compensation, and acquisitions, including its significant investment in artificial intelligence, all while preserving the existing voting structure that gives its founder and CEO control over roughly 60% of the votes.

The primary goal, according to reports, is to help Zuckerberg cover the costs of a proposed one-time 5% wealth tax on the net worth of several hundred California billionaires. This measure, known as Proposition 40, is currently on the ballot. Should voters approve it, the policy could raise as much as $100 billion over five years, with the majority of funds designated for state healthcare needs and the remainder for food assistance and education programs. The proposal has faced opposition from some prominent figures in Silicon Valley, who have argued it could harm the state's economy.

The New York Times reported that Zuckerberg personally pushed Meta’s board to develop a strategy to shield him from the potential tax. According to the report, in September, he informed board members that if they could not agree on a plan, he would list his Palo Alto property for sale, a move that could have triggered a media firestorm. The stock plan was developed shortly after that conversation. The reporting is partially based on a recent SEC filing from Meta, which outlines the discussions about Proposition 40 that led to the creation of the new stock class. The filing shows that conversations about the tax between Zuckerberg and board members began as early as July and continued through August.

The filing details how the plan would work. Meta will issue one Class C share for every Class A or Class B share that existing shareholders own. The company describes this as a one-time stock dividend, which is equivalent to a two-for-one stock split. Meta states that the dividend “will not change the voting power of any shareholder.” This structure is where the tax proposal comes into play, as it would allow Zuckerberg to sell or transfer a portion of his new nonvoting shares to cover any potential tax liability. The filing states he would be permitted to sell or transfer up to 20% of the Class C shares he receives, which represents 10% of his total economic stake in the company, without affecting his majority voting control. It has been estimated that Zuckerberg could be required to pay as much as $11 billion under the proposed tax.

Meta’s recent earnings press release included a statement from a Special Committee explaining that keeping Zuckerberg in California is important. The committee affirmed its belief that it was important for Mr. Zuckerberg to continue to lead the Company from California, including because it was crucial that Mr. Zuckerberg remains in close coordination with the Company's management and in close proximity to Meta Superintelligence Labs.