On top of its strong results yesterday, the company announced a three-for-one share split, creating a new “Class C” type of shares in order to fend off what is known as dilution, an economic phenomenon that can reduce the voting power of current shareholders when more shares come onto the market, reports Bloomberg. In effect, major shareholders like Mark Zuckerberg could potentially lose voting control of the company. Here’s how Facebook’s new classes of stock work:
• Class A: This is what the average investor owns today. Each share confers one voting right.
• Class B: This is what Zuckerberg and other company insiders hold the most of. Each share confers 10 voting rights.
• Class C: This is the proposed new class of shares. It has the same dollar value of both Class A and Class B shares, but doesn’t confer any voting rights to the holders.
Once the split is initiated, there will be 5.7 billion new Facebook shares on the market, yet those will confer no voting rights, meaning Zuck retains power.