Meta's New Class C Stock Solves Zuckerberg's $Billions Tax Problem

Mark Zuckerberg owns about 13% of Meta but controls roughly 61% of its votes — and a new SEC filing shows the company restructured its stock this week so a California wealth tax bill won't force him to give up the second number.

California voters decide on Nov. 3 whether billionaires pay a one-time 5% tax on net worth under Proposition 40. Seven billionaires, including Peter Thiel and Google cofounders Larry Page and Sergey Brin, have already left the state, taking about $540 billion — 30% of California's billionaire wealth — with them. Nvidia's Jensen Huang is staying. So, under a binding eight-year commitment, is Zuckerberg.

Why ownership and control are different at Meta

Most shareholders get one vote per share. Zuckerberg holds mostly Class B shares, which carry 10 votes each; ordinary Class A shares carry one. So of every $100 of Meta's value, about $13 is his, but of every 100 votes, about 61 are his, according to the filing Meta released Wednesday. That majority lets him elect the entire board and decide nearly every shareholder vote.

A wealth tax bills the 13%. Paying it means selling stock — and when Class B shares are sold, they convert into one-vote Class A shares. Every sale to pay the tax would erode his control.

The committee of independent directors that negotiated with Zuckerberg found he was "not on the verge of losing voting control." But it named the wealth tax as one of the main reasons that could change, saying it "has the most significant impact because it would require him to sell shares, or at least borrow against them." The filing says he "could become liable for a significant, multi-billion dollar tax payment based on his ownership of stock in the Company."

What did Zuckerberg argue?

At an Aug. 26 meeting, Zuckerberg "questioned why the preservation of the status quo with respect to the ratio of his voting control to his economic interest in the Company should be a consideration for the Special Committee, citing precedent in other companies where relatively small economic ownership nevertheless conveyed founder voting control," the filing read.

The committee proposed in August a dividend of non-voting stock payable "if, and only if, California Proposition 40 became law and a tax payment by Mr. Zuckerberg became due and payable," sized to cover his bill. Zuckerberg wanted more. He "did not wish to go through additional protracted negotiation processes in the future if taxes similar to California Proposition 40 were proposed in other jurisdictions."

The final deal, which Fortune reported Wednesday, gives every shareholder one non-voting Class C share for each share they hold. The committee wrote that Zuckerberg could immediately sell 20% of his new shares — "representing 10% of his overall economic stake in the Company, 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."

Because Zuckerberg takes a $1 salary, the committee said the tax would otherwise leave him "effectively be paying to serve as the Company's chief executive officer while residing in California."

Why the board wanted him in California

In July, the committee said it was "crucial that Mr. Zuckerberg remains in close coordination with the Company's management and in close proximity to Meta Superintelligence Labs." It recalled "the difficulties the Company faced during the COVID-19 pandemic when Mr. Zuckerberg could not be physically present with the Company's management team."

On Sept. 6, Zuckerberg told the committee he "would need to begin taking steps by mid-September in order to establish residency outside California by mid-October." The final agreement commits him to stay in California, or wherever Meta is headquartered, for eight years, "absent material unforeseen circumstances."

How Meta frames the new stock

Meta told Fortune the new class is mainly about financing AI spending. Its earnings release said the stock would "provide Meta the ability to finance its growth and help the company remain a leader among fierce competition both domestic and international," and credits Zuckerberg for Meta's stock rising more than 1,700% since its IPO, against about 495% for the S&P 500.

"We created this new class of shares with the purpose of creating a publicly traded non-voting stock usable for capital raising, employee compensation, acquisitions, other general corporate purposes while preserving the voting power of existing Class A and B shareholders," chief financial officer Susan Li said on Wednesday's earnings call. "We believe this share class will maintain our founder-led structure. It will expand our funding tools and give us flexibility to invest behind the unprecedented momentum we're seeing across every part of our business driven by AI."

The filing says management's forecasts "showed the Company's need to raise hundreds of billions of dollars over a period of several years beginning as early as fall 2026." It also acknowledges the new stock "could substantially prolong the duration of Mr. Zuckerberg's voting control." Class A shareholders did not vote, because Zuckerberg "has the ability to unilaterally approve" the change.

If Proposition 40 passes on Nov. 3, the structure is already in place — Zuckerberg can liquidate a tenth of his economic stake, settle the bill, and keep every one of his 61 votes.