Shopify Shareholders Vote in Favor of Stock Split and "Founder Shares"

Shareholders of Shopify Inc. (SHOP), the Canada-based e-commerce company, voted in favor of two key proposals at the company's annual general meeting on June 7. Most important, they approved increasing the voting power of founder and Chief Executive Officer (CEO) Tobi Lütke. This will enable him to maintain his voting power for as long as he is at the company. Separately, shareholders also approved a 10-for-1 stock split.

New "Founder" Share Class

The new corporate governance structure approved at the meeting grants Lütke non-transferable "founder shares." The founding shares increase Lütke's voting power to 40%. As of March 31, he had voting power of approximately 34%. Lütke will retain those shares as long as he continues to serve Shopify as a board member, executive officer, or consultant.

Under the previous structure, Lütke's control over the company was threatened if the proportion of class B shares ever fell below 5% of total shares outstanding. Those shares would then automatically be converted into class A shares. This would mean that any issuance of new shares would diminish Lütke's voting power.

The purpose of Shopify's founder shares is to incentivize Lütke's long-term involvement in the company. In a press release before the vote, Shopify said that Lütke has delivered significant shareholder value over the seven years since its initial public offering (IPO) in 2015. Granting him founder shares requires that he maintains an active role in the company, with the aim of creating greater long-term shareholder value.

Stock Split

Shopify's shareholders also voted in favor of a 10-for-1 stock split of the company's class A and class B shares, which the company said was unrelated to the vote on the founder shares. The split needed approval from two-thirds of Shopify's total shareholders. It also required at least a majority of votes from shareholders excluding Lütke and any of his affiliates and associates.

Shareholders of record as of close of business on June 22, 2022 will now receive nine additional class A or B shares for every single share held following the close of business on June 28. Shopify will begin trading on a split-adjusted basis on June 29, 2022. The price of the shares will be adjusted lower to reflect the increased number of shares. The stock split is intended to improve the affordability of Shopify's shares.

While shares of Shopify have soared in the seven years since the IPO, they have provided a total return of -69.3% over the past year.