Shareholders of Facebook Inc. filed a class action lawsuit against Mark Zuckerberg on Friday April 29. They want to stop the his plan to issue new Class C stock, which will make him a controlling shareholders.
Facebook will issue the Class-C shares for each outstanding Class A and Class B share held by shareholders. The new class shares will be publicly listed, but they do not have voting rights and will be traded under a new symbol. Reuters reported the existing shareholders filed a lawsuit against the company and calling the move an unfair deal to entrench Chief Executive Mark Zuckerberg as controlling shareholder.
"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," the lawsuit said.
Shareholders of the company accused Zuckerberg wanted to retain his power in Facebook, while selling of large amount of his shares and reaping billion dollars in that proceeds. This decision was made after last December, Mark Zuckerberg made an announcement that he would sell 99% of his his Facebook shares into a new philanthropy project focusing on human potential and equality. The restructuring of new shares will be conducted in an effectively a 3-for-1 stock split.
The lawsuit had been filed in the Delaware Court of Chancery.
Previously on Wednesday, Facebook reported a much better quarterly performance which beat Wall Street expectation. Venture Beat reported the company earned $5.38 billion in revenue in the first quarter of 2016, and $5.2 billion of that amount came from advertising. That gives each shareholders a $0.52 earnings per share in a 57% annual increase.
The company has been dubbed by mobile analytics company AppsFlyer as "the undisputed leader in mobile advertising" because of his success in roll out the successful mobile advertising. Although, better thatn epected result made the investor happy, but the new stock issue has upset its shareholders.
Zuckerberg argued the moved was made to help him accomplishing his goals to connect the next 5 billion people in the world. According to Quartz, Zuckerberg said the new stock structure would alleviate Facebook from external pressures and allow it to focus on its long-term plans, which include investments in artificial intelligence and virtual reality.
"Priscilla and I will be able to give our money to fund important work sooner. Right now, there are amazing scientists, educators, and doctors around the world doing incredible work. We want to help them make a bigger difference today, not 30 or 40 years down the road," Zuckerberg said about his plan.
However, the shareholders disagreed with his plan and had made a counter move to sued the company. They deemed his plan is unfair to shareholders, as Facebook will issue a new Class C stock by splitting existing stock 3-for-1.
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