Zuckerberg weighed leaving California over the wealth tax. Meta answered with a brand new class of inventory

On Wednesday as Meta launched third quarter earnings outcomes, the corporate introduced that it might challenge a brand new share class of Class C inventory. The share class, which is technically a one-for-one inventory dividend of latest Class C shares, shall be distributed to all shareholders. It was conceived following months of intensive negotiation that grew contentious at times between Zuckerberg and board members, together with DoorDash CEO Tony Xu, Ambassador Robert Kimmitt, and ex-Microsoft govt Charles Songhurst. Xu disclosed his private friendship with Zuckerberg however stated it wouldn’t impair his judgement. At one level, the committee even talked about resigning in the event that they couldn’t come to a decision.

According to a Meta submitting with the Securities & Exchange Commission, Zuckerberg needed to have the ability to preserve his voting management, meet his pledges to fund the Chan Zuckerberg Initiative together with his Meta inventory, and be ready to pay billions to the state of California if a proposed wealth tax is authorised by voters in November. 

The proposed wealth tax, nevertheless, got here across the identical time as a choice by the corporate in late 2025 that Meta wanted to boost exterior capital to assist fund the AI growth. Zuckerberg holds about 60.6% of voting management at Meta, whereas his stake is about 13.4% of the corporate. 

Like different main tech firms, Meta maintains a dual-class share construction, the place Class A shares commerce on Nasdaq as a one-vote-one-share inventory. Conversely, Zuckerberg’s holdings are made up of principally Class B shares, which carry 10 votes per share, which is how he maintains majority management. The situation on the supercharged Class B shares is that if Zuckerberg sells them, they convert to Class A. Many firms require this situation for super-voting shares to make sure that outsiders don’t begin to acquire management of firms from founders looking for liquidity. 

The rub is that if Meta points extra Class A shares, which it does with a purpose to make fairness grants to staff, make acquisitions or elevate capital, Zuckerberg’s stake will get diluted. Meta has lengthy offset the dilution with inventory buybacks, which helped buoy his voting energy from 53.7% in 2013 to 60.6% now. But the buybacks additionally drain money that Meta desires to make use of to fund the AI buildout. The firm’s SEC filings present Meta repurchased $26.3 billion in Class A inventory in 2025, however hasn’t purchased again any shares in 4 straight quarters. Meanwhile, within the first 9 months of this 12 months, Meta posted $21 billion in stock-based compensation.

Meta’s third quarter results, launched Wednesday, assist clarify why the share class took place. Revenue this quarter rose 26% to $64.6 billion whereas capital expenditures hit $34.9 billion. Meanwhile, free money movement dipped to detrimental $2.1 billion, in comparison with $10.6 billion a 12 months in the past. Meta additionally forecast capex for 2026 at $135 billion to $140 billion, elevating the low find yourself from $130 billion. Meta forecast fourth quarter turnover of $73 billion to $76 billion. 

As an answer to the crunch, the brand new Class C inventory will carry no votes, the corporate stated. Meta will use them to pay staff, fund acquisitions, and lift capital with out Zuckerberg dropping majority voting management. He also can promote a few of them with out giving up votes, and extra importantly, pay a doubtlessly huge wealth tax invoice looming in California with out having to faucet into his Class B shares. His present degree of management is such that he can personally elect all the administrators on the board and decide a lot of the points proposed to shareholders for a vote, which gained’t change following the recapitalization. With the brand new shares, Zuckerberg can promote 20% immediately, and the remaining 80% are “stapled”—that means he can promote them provided that he sells or converts an equal variety of his voting shares. 

Proposition 40 in California, often called the wealth tax, is up for a vote on Nov. 3 and if it passes, it may hit Zuckerberg and the wealthiest within the state with a multibillion invoice. The Bloomberg Billionaires index lists him at #5 with a web value of $246 billion. In July, Zuckerberg instructed Kimmitt, who’s Meta’s lead impartial director, that promoting his Class B inventory to cowl what he would possibly owe for the wealth tax may lower his voting stake again right down to 53%.

The tax got here up in a dialog between the 2 after negotiations between Zuckerberg and the committee appeared to develop tense. The committee had urged shareholder-friendly sundown provisions that may see the Class B shares convert into common inventory inside a 12 months of Zuckerberg’s eventual demise or departure from Meta—or if he bought greater than half his holdings. During a name with Kimmitt in July, the 2 mentioned the wealth tax and famous that Zuckerberg had solely taken a $1 wage from Meta since 2013. 

Later that very same month, Zuckerberg once more introduced up Prop 40, this time elevating considerations about whether or not it would affect his means to remain a California resident. The following week, Zuckerberg’s legal professionals despatched a letter asking for a pay bundle just like these made to different tech founders, partly so Zuckerberg may pay a possible tax invoice. Like SpaceX and Tesla CEO Elon Musk, many founders in tech have moonshot efficiency pay packages, through which rigorous inventory value development is tied to huge pay hurdles. According to the submitting, Zuckerberg refused to contemplate any modifications to his voting shares, together with sundown provisions, and instructed the committee he was “contemplating establishing residence exterior of California.”

The subsequent day, the committee hashed over Zuckerberg’s stance and went over Meta’s analyst protection and commentary, and the tightening of credit score situations for hyperscalers. Meta had seen comparatively looser demand for its July bond issuance for a Texas information middle. The committee needed to maintain Zuckerberg in California, near its synthetic intelligence lab. 

Later that very same day, August 4, Zuckerberg proposed a dividend of 20 shares of Class C inventory for every share of Class A and B shares, paid to all shareholders. He instructed the committee he wouldn’t comply with sunsetting his Class Bs or assist fairness financing that diluted his voting management.

Then, he upped the stakes.

Zuckerberg instructed the committee “he meant to ascertain residence exterior California, which he had been suggested he would wish to do earlier than the November. 3, 2026 election,” the submitting states.

The committee met once more August 5, however considered the 20-for-1 proposal as “extreme,” the submitting states. By late August, all sides have been dug in after varied proposals had been issued and objected to. Eventually, committee members mentioned dissolving the committee or resigning from the board if Zuckerberg wouldn’t make concessions for the advantage of all Class A shareholders. 

At a September 9 board dinner, Zuckerberg instructed administrators he deliberate to record his Palo Alto property on the market on September 13. Committee members had recused themselves from dinner throughout his replace. And then inside days, a brand new proposal got here collectively. Zuckerberg dropped his pay request and agreed to maintain the $1 wage and dedicated to remain in California or wherever Meta is headquartered, for eight years. All shareholders get one other one-for-one Class C dividend each time the inventory value doubles from $580.60, as long as annual returns are not less than 10%.

The deal was inked on September 14. Every Class A and Class B share will get one Class C share, successfully a two-for-one cut up and Zuckerberg can promote 20% of his new Class C shares immediately. The committee authorised days earlier than the complete board sealed the deal on October 19. Chan Zuckerberg entities that maintain 56% of the vote signed off the next day and the brand new shares take impact on Jan. 19, 2027.

Chief monetary officer Susan Li stated Wednesday buying and selling of the Class C inventory will start in late January. She stated Meta has no particular financing plans but. 

“We thought it was prudent to ascertain the suitable capital construction framework to make sure that we have now entry to a various pool of funding sources,” she stated throughout Wednesday’s name.