The Conflict Of Shareholders’ Interest And Resolutions Under Dual-class Share Structure

Faced the dilemma of corporate financing and maintaining the right of control, corporate founders have created the dual-class share structure to solve this problem as early in the beginning of last century. By issuing shares or adjusting the share structure, the corporate shares categorize into two types. For one type, the shares has only one vote according to the one share-one vote principle, while the other type, the shares have more than one vote, usually couples or dozens of voting rights. It is simple to make dual-class share structure via issuing new shares. The specific ways of adjustment of share structure include exchange offers, special distributions, voting rights alteration. However, as dual-class share structure goes far from the fundamental principle of one share-one vote, countries hold different attitudes toward the dual-class share structure. What mostly worries regulators and scholars is the obvious conflict of shareholder’s interest triggered by the separation of right of control and cash flow under dual-class share structure. Namely, the controlling shareholders grasp the most voting rights through holding the super-voting shares and their potential opportunistic behavior greatly threats other shareholders’ interest. Therefore the legitimacy of the dual-class share structure is under tremendous suspicion.From the perspective of law-economics, the dual-class share structure may increase the agency cost, weaken the corporate governance, reduce the supervision of control market; however, this share structure may reduce the cost of voting, the risk of hostile takeover, and good for companies making long-term plans. It is inconclusive that dual-class share structure itself will reduce corporate value or not. Meanwhile dual-class share structure has obvious institutional benefits. From the perspective of contact theory, it is believed that we should determine whether the parties are autonomous according to the different implementations of the dual-class share structure. Under the dual-class share structure through issuing shares differed in voting rights, the information disclosure fully reveals risks, which leaves sufficient room for autonomy of public investors. However, under the dual-class share structure through recapitalization, shareholders are difficult to achieve genuine autonomy due to the dilemma of collective action and the problem of strategic choice. Thus, the dual-class share structure through recapitalization shall be restricted or prohibited. For the conflict of shareholders’ interest under dual-class share structure, it is believed that we may control the agency cost problems through the implementation of regulatory mechanism, and supplemented by remedial mechanism as post supervision.This thesis mainly includes:Chapter One is about the theoretical basis of dual-class share structure. This chapter mainly introduces the meaning, the implementation method, legislation mode, the offshore present status and case analysis of dual-class share structure. The implementation methods include the share issuance and recapitalization, which is the precondition of discussions of the legitimacy and applicability of dual-class share structure. This chapter also reveals that the primary cause of the different legislation attitudes in the global world is the conflict of shareholders’ interest under the dual-class share structure.Chapter Two is about the conflict of shareholders’ interest under the dual-class share structure. This chapter mainly analyses the controversy between dual-class share structure and one share-one vote principle, the conflict of interest between the shareholders with super-voting shares and other shareholders, the conflict of interest between shareholders in the same type. Among them, the conflict of interest between the shareholders with super-voting shares and other shareholders is of the most importance, and the reasons of which are information asymmetry, bound rationality of controlling shareholder, incentive imbalance, interest orientation contrary, etc..Chapter Three is about the legitimacy of the dual-class share structure. This chapter mainly analyses the legitimacy of the dual-class share structure from the perspective of law-economics and contract theory. The negative opinion holds that it should be prohibited as the irreconcilable conflict of interest under dual-class share structure breaks down the anvil of one share-one vote principle. Nonetheless, this chapter proves that dual-class share structure is legitimate from the perspective of law-economics and contract theory.Chapter Four is about the resolution mechanisms of the conflict of shareholders’ interest. The regulatory mechanism includes the limitations on rights of super-voting shares, compulsory information disclosure systems, the adjustment of corporate voting system, the enhancement of the effectiveness of independent director, the adaptation of corporate incentive systems, etc.. The remedial mechanism includes the shareholder class action system and non-judicial remedial system. By analyzing the applicability and specific content of every system under the dual-class share structure, this chapter tries to create matching resolutions of conflict of shareholders’ interest under dual-class share structure.