Spotify's plan for a direct public offering includes a firewall to keep its founders in control

LeWeb

• Spotify just filed the paperwork for its direct public listing.
• Like Snap, Facebook, and other tech companies that have gone the traditional initial public offering route, Spotify engineered a firewall to ensure the founders stay in control.
• Spotify has created a class of "beneficiary certificates" that carry voting power but no economic power.
• Spotify has issued 379.2 million shares to founders Daniel Ek and Martin Lorentzen, giving them over 80% of the voting power.

After a lengthy buildup, Spotify has finally filed for its direct public listing - the unorthodox process that circumvents the traditional Wall Street initial public offering process wherein banks are hired to find buyers for the shares.

Spotify plans to list on the New York Stock Exchange under the ticker "SPOT," according to the company's F-1 filing with the Securities and Exchange Commission.

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But once the shares are on the NYSE, technically anyone can buy them up. Spotify's founders, Daniel Ek and Martin Lorentzen, have engineered a class of super shares to ensure they retain control of the company, according to the SEC filing.

Spotify created a class of "beneficiary certificates" that carry voting power but zero economic power. They're worthless other than giving the holder one vote on company matters, and subject to certain exceptions, they will "automatically be canceled for no consideration in the case of sale or transfer of the ordinary share to which they are linked."

Up to 1.4 billion certificates can be issued to holders of ordinary shares, at a ratio of one to 20 per share, at the discretion of the board of directors.

Ek and Lorentzen, who already own a combined 38.9% of the ordinary shares, will each receive 10 beneficiary certificates for every ordinary share they own, for a total of 379.2 million. That gives them just over 80% of the voting power in the company.

Spotify is taking a different route to going public, but just like high-profile tech IPOs such as Snap and Facebook, this measure effectively creates a firewall that keeps the founders in control, regardless of who buys up shares on the public markets.

Spotify's beneficiary certificates will, in part, discourage any third-party from trying to buy up enough the company to shake things up.

"The issuance of beneficiary certificates also may make it more difficult or expensive for a third party to acquire control of us without the approval of our founders," the filing reads.

The filing puts it in plain English - Ek and Lorentzen will essentially have total authority:

"As a result of this ownership or control of our voting securities, if our founders act together, they will have control over the outcome of substantially all matters submitted to our shareholders for approval, including the election of directors."

The board can issue more beneficiary certificates - there are more than 1 billion remaining from the total authorized amount - but, of course, Ek and Lorentzen sit on the board and control the voting power, so they'll have a say in that matter, too.