Facebook’s Class C Shares Explained

Facebook‘s (NASDAQ:FB) shareholders approved a proposal to create a new class of non-voting shares (class C) on Monday. This is intended to enable Mark Zuckerberg to give away 99% of his wealth over time without relinquishing control of the company. Facebook will issue two class C shares for every class A and B share held by shareholders, which effectively translates into a 3-for-1 split. Below we look at what this means: As shown in the table above, Mark Zuckerberg holds 15% of Facebook’s total shares but controls 54% of the company’s voting rights by virtue of holding a larger percentage of class B shares. Class B shares have 10 votes each per share, as opposed to 1 vote for each class A share. After the class C shares are issued, the total number of outstanding shares will increase from 2.86 billion to 8.58 billion, but Zuckerberg’s shareholding and voting rights will remain the same.

The general idea behind the issuance of class C shares is that when Zuckerberg donates his wealth to fund his philanthropic activities through the Chan Zuckerberg Initiative, it does not dilute his voting rights in the company. This will happen because his philanthropic activities are most likely to be funded through the non-voting class C shares and his class B shares are likely to remain intact.

If Zuckerberg gives away 50% of his wealth to the Chan Zuckerberg Initiative immediately after the new class C shares start trading, his holding of 1,269 million shares will decline to 635 million shares but the dilution will only happen from class C shares. This will dilute his total shareholding from the current 15% to about 7.5% but his voting share will remain constant at 54%. 

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