Facebook Faces Class-Action Over Proposal to Create New Stock Class

That was quick: Just days after Facebook announced a proposal to create a new class of common shares, the company is facing a class-action suit over the proposal.

That was quick: Just days after Facebook announced a proposal to create a new class of common shares, the company is facing a class-action suit over the proposal.

Facebook announced last Wednesday that its board of directors approved a proposal to create a new class of non-voting capital stock, class-C capital stock. The company said that if its proposal is approved, it will issue two class-C shares as a one-time dividend for each outstanding class-A and class-B share of common stock.

The proposal will be voted on at Facebook’s 2016 annual meeting, scheduled for June 20.

Reuters reported that a Facebook shareholder filed a proposed class-action lawsuit in the Delaware Court of Chancery, calling the proposal an unfair deal to entrench Facebook co-founder and CEO Mark Zuckerberg as the company’s controlling shareholder.

According to Reuters, the suit claimed that the company “did not bargain hard (with Zuckerberg) … to obtain anything of meaningful value” in exchange for the control he would retain over Facebook, adding:

The issuance of the class-C stock will, in effect, have the same effect as a grant to Zuckerberg of billions of dollars in equity, for which he will pay nothing.

Facebook responded in a statement issued to Reuters:

(The proposal) is in the best interests of the company and all stockholders.

Readers: How do you see this lawsuit playing out?

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