Mark Zuckerberg made headlines this weekend when he announced that he would be giving 99% of his shares in Facebook to charity over a number of years in the hope of making the world a better place for his newborn daughter.
Reports suggest that the entrepreneur is going to maintain a controlling interest in the company but as his shareholding diminishes how will he keep control of the business and maintain his position as the leader of one of the most recognised brands in the world?
The answer? Mark has incorporated his own charitable foundation, so that he can oversee the way in which the gift is used whilst maintaining his position as controlling shareholder at Facebook.
This has led to critics slamming him for simply shifting his wealth from one pocket to another, but was there a viable alternative?
Matthew Fretten, Solicitor in our Commercial team says, "One solution would have been to limit the rights attached to the gifted shares enabling him to gift them directly to charity. Here in the UK it is common for Companies to differentiate between groups of shareholders by using share classes."
Companies are able to follow procedures laid out in the Companies Act 2006 to create classes of shares which have few or no voting rights or which attract a predetermined share of the dividends declared in any one year. These rights are regularly used when a company creates an employee share scheme but could equally be utilised for a charitable share scheme. Facebook has already divided its shares into separate classes with minimal and majority voting rights so this would have been an easy path to take.
Matthew goes on to explain, "An alternative option would be to put in place a shareholders agreement under which the charitable shareholders agree to curtail their voting rights. Using this mechanism would enable the arrangements to remain private as shareholders agreements are not usually made available to the general public."
Mark’s decision to give away his wealth is a bold and ambitious move, but his desire to remain in control of the business is one that can be fulfilled. As for his ambition to make the world a better place for his daughter, that’s going to be much harder.
Our Commercial Team, based in Christchurch, also cover Bournemouth, Poole and the New Forest. For a free initial chat, please call 01202 499255 and Matthew or a member of the team will be happy to discuss any questions that you may have.