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E-MailDavid J. Berger is a Partner at Wilson Sonsini Goodrich & Rosati; Daniel Gallagher is the Chief Legal, Compliance and Corporate Affairs Officer at Robinhood Markets; and Steven Davidoff Solomon is the Alexander F. and May T. Morrison Professor of Law at University of California, Berkeley School of Law. This post is part of the Controlling Shareholder Series; links to other posts in the series are available here.
The 80s called—they want their shoulder pads, synth-pop, moon-walks and, apparently, their blanket prohibition on midstream recapitalizations back. For more than three decades, a doctrinal relic from the leveraged-buyout fever of that era has quietly blocked shareholders from rearranging their capital structure midstream, even when those deals are demonstrably fair and value-maximizing. Though a relic, the exchange rule banning dual-class recapitalizations is still biting. Nasdaq has recently taken the position that the extension of a sunset on dual-class stock implicates (and possibly violates) the rule (while the NYSE has not commented publicly on Nasdaq’s position, its rule is largely identical to Nasdaq’s rule and presumably would be interpreted in the same way). The consequence is that this 80s by-gone now conceivably stands in the way of a host of dual-class companies seeking to extend sunset provisions to the benefit of their shareholders.
Back in the 1980s hostile takeovers were daily front-page news and corporate raiders like Carl Icahn, Victor Posner, and the Belzberg brothers struck terror into boardrooms. One particularly controversial defensive tactic was the “midstream recapitalization”: a controlling or incumbent block would propose a restructuring—often issuing high-vote or non-voting stock or exchanging existing shares on differential terms—that dramatically shifted voting power away from the public float and toward management or founders thereby defeating a hostile bid. In the most infamous cases (e.g., the 1987 Harcourt Brace Jovanovich recapitalization and the 1985 Multimedia recapitalization), minority holders faced a Hobson’s choice: tender into a coercive, hostile deal or be left holding highly illiquid, low-vote stubs.
Responding to this perceived crisis, the SEC in 1988 adopted Rule 19c-4 under the Investment Company Act framework—an attempt to prohibit listed companies from issuing stock that would “disenfranchise” existing shareholders by reducing their proportional voting power midstream. The rule was explicitly justified as a back-door enforcement of the Commission’s longstanding preference for one-share, one-vote governance. It was also part of a broader SEC campaign against dual-class structures adopted as takeover defenses after the initial IPO.
The D.C. Circuit struck down Rule 19c-4 in 1990 in Business Roundtable v. SEC, holding that the SEC had exceeded its statutory authority. But the exchanges—NYSE, Amex (now NYSE American), and later Nasdaq—quickly filled the perceived vacuum. Fearing both political backlash and a race-to-the-bottom among listing venues, they each adopted listing rules (the “Voting Rights Rule”) that effectively banned “disenfranchising” midstream recapitalizations while grandfathering dual-class structures adopted at or before the IPO (the so-called “IPO exception”).[1]
The result: a company like Google or Snap can go public with dual-class stock or even non-voting shares but a single vote company that later discovers a legitimate business reason to adopt differential voting rights—whether to bring in a strategic investor, facilitate an Up-C umbrella partnership structure or for another reason—has been categorically blocked for three and a half decades.
Then there are dual-class companies seeking to extend their sunsets. Recent research has consistently found that companies with dual and multi class shares, on average, outperformed the companies with single class shares across both the short and long-term. The benefits of dual class are clear and have provided value to shareholders.
At one time Nasdaq seemed to take the position that a company which extended its dual class structure was not in violation of the Voting Rights Rule. For example, in 2020, without any objection from Nasdaq, The Trade Desk, Inc. (Nasdaq: TTD) modified its then-existing triggers for the elimination of its dual-class structure. In addition, numerous Nasdaq-listed companies have created (or sought to create) non-voting stock for the stated purpose of extending the control of significant stockholders and avoiding erosions of control. These companies include Google, Meta (then Facebook), Zillow, and IAC.
Consistent with this history, in the fall of 2025 The Trade Desk decided to amend its charter to extend its dual class structure while also amending its bylaws to provide that the corporation’s lead independent director may call special meetings of the independent directors and committed to holding annual Say-on-Pay Votes. The company’s shareholders approved these actions in September 2025.
Shortly thereafter, in October 2025 Seer, Inc. (Nasdaq: SEER) proposed extending its time-based sunset by five years, with the board also committing to appoint an independent, non-employee director as board chair and to hold annual Say-on-Pay Votes.[1] Like The Trade Desk, Seer took this action relying on Nasdaq’s apparent prior view that these types of extensions did not violate the Voting Rights Rule.However, rather than follow its historical precedent Nasdaq told both companies that it viewed their efforts to extend their dual class structures as a potential violation of the Voting Rights Rule. In response, Seer ultimately decided to drop the proposed amendment. When The Trade Desk decided to proceed with its amendment it received a letter of reprimand from Nasdaq notifying the corporation that Nasdaq had determined that The Trade Desk had violated the Voting Rights Rule in connection with the completed extension (but Nasdaq permitted The Trade Desk to keep the extension in place).
We believe that Nasdaq’s position – to the extent it bars extension of dual class sunsets – is at odds with both the purpose and text of the rule. A dual class extension does not violate the purpose of the Voting Rights Rule but rather is in accord with the goal of the rule to protect stockholders and increase stockholder wealth. A dual class sunset extension does not reduce stockholder governance rights or voting power, nor is it being adopted to the economic detriment of stockholders. Instead, a dual class extension enhances (rather than restricts or reduces) the governance rights of existing public stockholders by preserving a capital structure which has created value for the company.
Not only is a dual class extension in accord with the purpose of the Voting Rights Rule, but it also complies with the letter of the rule. The Voting Rights Rule currently in place at both Nasdaq and NYSE rule provides that the voting rights of existing stockholders of publicly traded corporations “cannot be disparately reduced or restricted through any corporate action or issuance.” The Rule states that examples of such a corporate action or issuance include, but are not limited to, “the adoption of time-phased voting plans, the adoption of capped voting rights plans, the issuance of super-voting stock, or the issuance of stock with voting rights less than the per share voting rights of the existing common stock through an exchange offer.”
A dual class extension does not involve any of the actions enumerated in the Voting Rights Rule as examples of disparate reductions or restrictions in voting rights, and in fact, do not contemplate any changes whatsoever to the actual voting rights of stockholders or the manner in which stockholders may vote their shares.
The Nasdaq position places a significant roadblock to the corporate governance arrangements of dual class companies seeking to preserve dual class structures. Approximately 10% of U.S. companies completing IPOs in the last decade have had a multi-class structure, with a significantly greater percentage of technology company IPOs adopting multi-class structures, including as many as 50% of technology company IPOs in recent years. Many of these companies have time-based sunsets in their dual-class structures that are set to expire in the next few years, and the directors and stockholders of these companies may decide it is in the best interests of the corporation to maintain their dual-class structure. This is a decision that boards and stockholders should be allowed to make as provided for under the law of their state of incorporation. This market-based approach to the interpretation of the Listing Rules is consistent with recent developments in state corporate law. For example, Delaware has recently streamlined its rules for approving transactions, including amendments to capital structures. Amid ongoing competition to attract corporate franchises, several states (including Nevada and Texas) have adopted significant amendments to their statutes, which are designed to, among other things, facilitate transaction planning, create additional flexibility for companies, and afford additional deference to boards of directors.
Ironically, both Nasdaq and NYSE allow non-U.S. companies to follow their home country practices rather than the Voting Rights Rules of the exchanges so long as that policy is not prohibited by their home country’s law. Allowing a foreign corporation to apply more flexible corporate governance standards than U.S. corporations not only puts U.S. corporations at a competitive disadvantage with their peers but also seems contrary to the SEC’s repeated policy positions over the last year that are focused on reducing regulatory burdens on U.S. companies and easing certain corporate governance policies as well as deferring to state law for corporate governance matters.
For example, at a Texas Stock Exchange event in April 2026, Chairman Atkins noted that the SEC is “focused on ensuring that states, and not the SEC, regulate matters of corporate governance” and that the SEC “must stay in our lane as a disclosure agency and not be a merit regulator.” (https://www.sec.gov/newsroom/speeches-statements/atkins-remarks-boom-belt-040726 ) As the exchanges have explicitly stated that the Voting Rights Rule “is based upon, but more flexible than,” former SEC Rule 19c-4, we believe that the Voting Rights Rule should not be interpreted in a manner that is inconsistent with the approaches taken by the SEC and the states leading the development of corporate law. Given the current legal landscape, if a proposed action is consistent with state corporate law, as a dual class extension appears to be, we believe that the exchanges should rely on its stated policy of interpreting the Voting Rights Rule flexibly and in a manner that meets the evolving needs of U.S. companies.
Ultimately, this is not just about dual class sunset extensions or even dual class stock. The Exchanges adopted the Voting Rights Rule as a precautionary rule against economically inferior transactions and potential abuse of minority shareholders. However, these rules were created in a legal and economic environment much different than today. In today’s environment the need for these rules is diminished due to the substantially changed market and legal environment. This is world of widespread shareholder litigation to enforce fiduciary duties, institutional investors willing to assert their rights and more efficient pricing which results in quicker consequences for company misdeeds.
We believe that the Voting Rights Rules should be repealed. Instead, analysis of these transactions should occur under state corporate law. As Delaware and other states have developed a process for consideration of these types of transactions through independent mechanisms, which may include a vote by the disinterested shareholders or disinterested directors, we believe that state corporate law sets the appropriate standard on the ability for U.S. companies to enter into these value enhancing transactions.
Repealing the exchange voting rights rules would not open the floodgates to 1980s-style coercion. It would simply move the guardrail from a crude categorical ban to a principled, transaction-specific inquiry under state fiduciary law—exactly where it belongs. It would also permit companies to implement and preserve value-creating corporate structures such as dual class extensions. Even more broadly, the forty-year experiment with the midstream recap ban offers a cautionary lesson in regulatory humility. Well-intentioned mandatory rules adopted in moments of perceived crisis often outlive their usefulness and become traps that prevent adaptation to new circumstances as is the case with dual class extensions. Apologies to lovers of Madonna, but the 1980s are over. It’s time the listing rules caught up with reality.
1Wilson Sonsini served as counsel to Seer.(go back)
2 NYSE Rule 313.00, Nasdaq Rule 5640, etc., now largely consolidated under NYSE 312.03 and Nasdaq IM-5640. (go back)
