The head of Facebook has avoided being dragged into a lengthy court case, following his announcement to shelve his plans for creating a new company stock.
A controversial plan to create a new company stock at US company Facebook, which resulted in legal action on behalf of some of its shareholders, has been dropped by CEO Mark Zuckerberg. The news will come as a relief to both Zuckerberg and the shareholders, who were gearing up for a legal battle scheduled to begin tomorrow in Delaware, with some suggesting the Facebook CEO would have to spend a substantial amount of time testifying.
The plan to create new stocks is a popular way for certain shareholders to raise capital by selling their shares without ceding control of the company and retaining the majority vote. The policy has been adopted by Alphabet Inc. am, well known for being the parent company of search engine behemoth Google, among others. Zuckerberg is known to want to retain voting control of the company he has built.
Zuckerberg had planned to sell a large amount of his shares in order to raise funds for his philanthropical pursuits over the next 20 years. However the only way to do this looked to be the sale of $12 billion in shares. A sale of that magnitude would have meant that he longer held the majority vote. Zuckerberg’s plan was to create the new stock to sell and raise the required amount without diminishing his capacity to control what goes on at the San Francisco based company.
The plan was not received well by all Shareholders, and Stuart Grant of Grant & Eisenhofer, was employed to launch legal proceedings preventing the motion. With both sides planning for a trial, Zuckeberg has now rescinded his plans due to the phenomenal rise in Facebook share prices. In a Facebook post, Zuckerberg wrote, “Over the past year and a half, Facebook’s business has performed well and the value of our stock has grown to the point that I can fully fund our philanthropy and retain voting control of Facebook for 20 years or more. As a result, I’ve asked our board to withdraw the proposal to reclassify our stock – and the board has agreed.”
The 31% increase in Facebook shares will mean that the sale of up to 75 million shares can go ahead without any changes to the voting structure, while still raising the amount required. Mr Grant welcomed the news, stating that the shareholders who were bringing the legal action were “thrilled that Facebook has dropped the reclassification.”
This should allow Facebook to continue working for and with its investors without a legal fight in the US courts.