What are the implications of Facebook's multiple class equity structure?
What are the implications of Facebook's multiple class equity structure?
In 2009, well before its IPO, Facebook, Inc. established a dual-class stock structure. Early shareholders were converted into Class B common stock, which wielded 10 times the voting power of Class A stock. The move allowed early investors and management the assurance that in the event of an IPO, their votes would still matter more than the common public shareholder. A later reclassification proposal, announced on April 27, 2016, aimed to establish a new class of non-voting capital stock, known as Class C capital stock. Class C shares had the same economic rights as Class A and Class B shares, but no voting rights. While many large companies have established multiple share class structures, companies looking to separate control from ownership are starting to face resistance.
This case outlines Facebook's equity class structure and asks students to consider whether this structure best supports the company's shareholders.