By: India McGee
Snapchat is the latest and hottest social media application, especially among teens. Close to 80 percent of teens use snapchat monthly. Snapchat is an application that is known for its cool filters and disappearing pictures. Snapchat also allows users to take pictures and videos of themselves and their daily occurrences to share with others using Snapchat. Snapchat friends can view the picture or video which will disappear within ten seconds after viewing it. Snap Inc., the parent company for Snapchat, recently issued its Initial Public Offering (“IPO”), making it a public company. With this change, Snap Inc. will now be able to sell securities, such as stock, to investors and the general public. The individuals who purchase Snap Inc.’s stock will be classified as shareholders. Generally, the class or series of shares that the shareholder of a corporation purchases determines the type of rights that the shareholder receives “against the company and its assets.”
What is interesting about Snap Inc.’s IPO, however, is its stock structure. Before purchasing Snap Inc.’s stocks, individuals interested in investing should study it carefully. Snap Inc. has the following structure for its stock. The stock is designed as follows:
1) Class A stock possesses no votes, but the shareholders of this series of stock can attend the company’s annual shareholder meetings where the shareholders can present any questions they may have;
2) Class B stock is stock held by executives of Snap Inc. and early investors such as venture capitalists, and class B shareholders have voting rights of one vote per share; and
3) Class C stock is reserved for the founders of Snap Inc., Evan Spiegel and Bobby Murphy, whose voting rights consists of ten votes per share.
Typically, each class or series of shareholders in a corporations has voting rights. Snap Inc. investors, however, will not have any voting rights. The founders of Snapchat will have 88.5 percent of the voting rights in Snap Inc. Voting rights empower shareholders to elect board of directors and influence the direction of the company by voting on major issues. Unfortunately, shareholders of Snap Inc.’s class A stock will not have decision making power. In fact, the founders of Snap Inc. will dictate every major decision of the company as well as elect the board of directors. This highlights the growing concern regarding how much Snap Inc. will disclose at annual meetings and for annual reports to non-voting shareholders. This is alarming because regardless of a shareholder’s voting power, they deserve disclosure on all important matters related to the corporation to fulfill their rights as investors and owners of the corporation. Disclosure of all important information helps shareholders make informed investment decisions on whether to continue investing or not in the corporation.
Although Snap Inc.’s move to denying shareholders’ voting rights is unique, this denial is not atypical for social media companies to do so. Other major companies in the technology industry have similar stock structures. For example, Mark Zuckerberg, the Co-founder, CEO, and Chairman of Facebook, possesses more than half of Facebook’s voting power, and his control cannot be diminished in the future. Similarly, Google’s founders have over fifty percent of the voting power. Snap Inc.’s stock structure, as well as other technology firms’ move towards denying their respective shareholders’ voting rights, illustrate a new trend in how companies are setting up their stock structure. It is wise for the purchasers of these companies’ stock to be aware of the advantages as well as disadvantages that purchasing stock with no voting rights possess.
 Michelle Castillo, Snapchat is king among teens as Facebook declines in popularity, survey shows, CNBC (Oct. 13, 2016, 4:20 PM) https://www.cnbc.com/2016/10/13/snapchat-is-king-among-teens-as-facebook-declines-in-popularity-survey-shows.html
 See Larry Magid, What Is Snapchat and Why Do Kids Love It and Parents Fear It?, Forbes (May 1, 2013, 4:14 PM), https://www.forbes.com/sites/larrymagid/2013/05/01/what-is-snapchat-and-why-do-kids-love-it-and-parents-fear-it/#24928d054fce.
 See id.
 Jena McGregor, Snapchat’s IPO Filing Comes With an Unusual Investor Warning, Washington Post (Mar. 1, 2017) https://www.washingtonpost.com/news/on-leadership/wp/2017/03/01/snapchats-ipo-filing-comes-with-an-unusual-investor-warning/?utm_term=.1f352cf16acb
 Kurt Wagner, One Way Snapchat’s IPO Will be Unique: The Shares Won’t Come Voting Rights, Recode (Feb. 21, 2017, 8:30 AM) https://www.recode.net/2017/2/21/14670314/snap-ipo-stock-voting-structure.
 Shareholder, Investopedia https://www.investopedia.com/terms/s/shareholder.asp
 James Smith & Shane MacLean, Shares (Preferred and Common): A Guide to Share Capital for Startups, (NEED PUBLISHER) (Dec. 6, 2009) https://www.marsdd.com/mars-library/capital-structure-basics/.
 See McGregor, supra note 5 (noting that Snap Inc.’s investors may want to consider the following before purchasing shares: its “user growth could slow down;” changes in federal and state law; hackers could damage their product; unfavorable media coverage; buyers of IPO shares would not receive any votes; and Snap Inc. does not have a headquarters).
 See Wagner, supra note 6; see also, Maureen Farrell, In Snap IPO, New Investors to Get Zero Votes, While Founders Keep Control, The Wall Street Journal (Jan. 16, 2017 8:24 PM) https://www.wsj.com/articles/in-snap-ipo-new-investors-to-get-zero-votes-while-founders-keep-control-1484568034
 See Knowing Your Rights As A Shareholder, Investopedia https://www.investopedia.com/articles/01/050201.asp (listing voting rights as one of the major shareholder rights).
 See Wagner, supra note 6.
 See SEC Advisory Committee to Question Snap’s Transparency for Investors, Reuters (Mar. 1, 2017, 5:21PM) https://www.cnbc.com/2017/03/01/snap-ipo-sec-to-question-transparency-for-investors.html (noting that SEC Chairman of the Investor Advisory Committee, Kurt Schacht, plans to discuss the “unequal voting rights of common shares.”)
 Public Statement, Commissioner Luis A. Aguilar, Shareholders Need Robust Disclosure to Exercise Their Voting Rights as Investors and Owners (Feb. 20, 2013).
 See Wagner, supra note 6.