| Dual-class share structure is a kind of special share structure, which is different from the traditional structure- one vote per share. It has relatively long history abroad, but got attention recently in China. Along with China internet corporate giants- Baidu, Jingdong, and Alibaba have rushed to list on US stock exchange, Google, Facebook and other famous foreign Internet corporates run double-class share structure invariably, and then double-class share has been started to get Chinese Studies and the public’s attention.In the swirl of information, people might be puzzled by three questions. The first one is the exact relationship among dual-class share structure, one vote per share and equality of stock rights. The second one is how to balance internal and external conflicts of interest under dual-class share structure. And the third one is the possibility for the survival of the corporate under dual-class share structure in China.Compared with the win support of the people for one vote per share and equal shareholder-right in Corporate Law, the theoretical principle of dual-class share structure is not solid. The dual-class share structure is a pending debate, which has been widely discussed and questioned. In various voices, the greatest concern is caused by the imbalance of interests for the internal shareholders in companies with dual-class share structure. Shareholders have same cash flow right but different voting, this is the direct challenge against on one vote per share and the capital majority right, and it is also a threat for the principle of shareholder equality and substantive equality in modern corporate law.In addition, the conflicts of interest still exist between shareholders and company, shareholders and management, and shareholders and employees, these conflicts of interest show the particularity under dual-class share structure. In Corporate Law of dual-class share structure and self-regulation, the conflicts of interest widely exist. The action is directly affected by the own interest claims of legislators and supervisors, thereby the development of dual-class share structure is also affected. How to balance these conflicts of interest, we also need to take into account the issues.In this article, with the conflict and balance of interests as the angle of view, based on the analysis on the best practice of overseas dual-class share structure, make a detail analysis on the conflict of interest among stakeholders and the conflict of interest among the internal stakeholders, legislators and supervisors. For the two aspects of the conflict of interests, this article presents a number of interests balance mechanism, and the suggestions to improve the legislation of our country.Besides the introduction and the conlusion, this article is divided into four chapters, more than 120,000 words. The first chapter is the summary of the history and current situation of dual-class share structure. The second and the third chapters respectively analyze the dual-class share structure, internal and external regulation of conflict of interest. The fourth chapter proposes mechanisms to balance the interests. The conclusion comes back to the thinking of the domestic legislation of ownership structure. The main contents are as follows:The first chapter is "the history and present situation of dual-class share structure". The chapter reviews the development and present situation of dual-class share structure in the world, to provide readers with a three-dimensional picture, forms, presents the double connotation of equity structure of this system and within the scope of world development, and makes us in domestic economic and legal perspective this ownership structure has enough samples can be the reference and comparison.Dual-class share structure is translated into several different concepts in Chinese, including dual share structure, different voting rights structure, etc.. To clarify the connotation of this concept, this paper integrated the related research achievements, made a relatively comprehensive definition for the double dual-class share structure: Dual-class share structure refers to the ownership structure under which the public shareholders and management layer(founder) have two different voting shares, so as to ensure the management layer(founder) to hold the effective control of the company. In the concrete manifestation form, dual-class share structure may be realized through issue of different kinds of stocks, through the articles of association, through the protocol implementation or through intercompany control.Before in-depth study of the internal and external conflict of interest under dual-class share structure, it is necessary to review its development in the world. Therefore, this chapter shows the legislative attitude dual-class share structure in American, Canada, France, Germany, Britain and other countries. Look on the whole, dual-class share structure has been widely used in the world, while the acceptance is still not the same in all over the world. The structure is more acceptable in some countries or regions(for example America, Canada and Sweden), than in some other countries or regions where the law prohibits companies using dual-class share structure(for example the mainland Germany, Spain and China). And there are still some other areas allowing non-listed company to use dual-class share structure, but not allowing listed companies or quasi listiong companies using dual-class share structure(such as Hong Kong). This difference has always been there in recent decades, and overall, it hasn’t shown significant trend of the legislative attitude towards the dual-class share structure. This situation also gives enough space of imagination for our country to think over the introduction of dual-class share structure.One of the important sample study dual-class share structure is America. USA capital market is the preferred market for dual-class share structure companies in the mailand of China to apply for listing at present, and historical evolution of its attitude towards dual-class share structure has a strong representative. The NYSE’s receptive attitude towards dual-class share structure companies changed from acception to unacception to acception shows that the dual-class share structure is in disputes on theory and supervision, and the influence of regulatory competition for the attitude of supervision. Among them, Rule 19c-4 promulgated by SEC, had important impact on the supervision of dual-class share structure listed company in America.In addition, in order to make the readers more intuitive, truly understand the specific performance of dual-class share structure, this chapter introduces the concrete design of share structures of Facebook and Alibaba as samples. The two companies are both with dual-class share structure, but the Facebook has mainly adopted the dual-class share structure attached to the shares, and Alibaba takes partners mechanism more innovatively. The two styles have their own characteristic, and certain representativeness.The second chapter is "Internal conflict of interest under the dual-class share structure". This chapter analyses the conflict of interest between shareholders, between shareholders and other entities, and between shareholders and the public interests of the society in dual-class share structure companies.Before describing conflict of interest under dual-class share structure, it is necessary to review the shareholder’s interest perspective under one share per vote principle. One share per vote principle is the direct embodiment of the principle of equal shares in corporate governance, in one share per vote principle shareholder interests pattern is relatively simple, clear and easy to handle. Shareholders are in a relatively equal status, no matter with their different identities, different times of joining the company. However, conflicts of interest do exist under one share per vote principle, including interest conflict between large shareholders and small shareholders, interest conflict between the company and the shareholders, and interest conflict between management and the shareholderse. Even under the one share per vote principle, the countries have taken some correction mechanism to balance these conflicts. It also provides the ideas for the balance of interests of the 5dual-class share structure.Under dual-class share structure, shareholders’ interests patterns are more complex. Interest conflict may exist between shareholders holding shares with more voting rights and the shareholders holding shares with less voting rights, between the founder shareholders and public shareholders, between the shareholders with more voting rights, or between the public shareholders. In addition, there is a conflict between different shareholders’ interests and the interests of the company. These conflicts of interest have been the main argument to oppose dual-class share structure. To clarify these conflicts of interest, this chapter firstly analyzes the main parties and their interests under dual-class share structure, then respectively analyzes the conflict of interest between shareholders and between shareholders and other subjects.Internal interest parties under dual-class share structure, in addition to two types of shareholders-- high and low voting shareholders, also includes the company itself, the employees of the company, the directors, senior management personnel and the creditors of the company. The parties have different interest demands. Among them, the conflict of interest between shareholders can be divided into interest conflicts between shareholders holding shares with more voting rights and the shareholders holding shares with less voting rights, between the shareholders with more voting rights, between the shareholders with less voting rights. The conflict of interest between shareholders and other subjects includes interest conflicts between the shareholders and the company, and the conflicts between shareholders and the social public interest. These conflicts are similar to conflicts under one share per vote principle, but also have certain particularity because of the existence of dual-class share structure.The third chapter is "the external conflict of interests in regulatory of dual-class share structure". This chapter analyzes the legislative and regulatory development in America, Hong Kong market, and deeply analyzes the pattern of conflict of interest in legislation and supervision of dual-class share structure. The main interest subjects includes both the legislation and supervision of the company ownership structure of legislative and administrative supervision departments of listed companies, and the stock exchanges.From the world view, attitudes of regulators and the stock exchange towards treat dual-class share structure influence the rise and fall of dual-class share structure evolution in the very great degree. Dual-class share structure have the advantages and disadvantages of the innate, but regulators in consideration of its regulatory policy, and the stock exchange in consideration of listing rules, not only measure the impact of dual-class share structure on shareholders, the social and public interests or other stakeholders. In the interests of the various interwoven pattern, regulators and the stock exchange itself have also become a separate subject of interest, to confront the issue of conflict of interest between the internal and other subjects. The stock exchange is facing its own conflicts of commercial function and public function in one caused by the commercial interest and public interest. Different regulators and the stock exchange are facing a conflict of interest caused by the regulatory competitions. The development process of dual-class share structure is also a process of conflict of interest in regulation to occur, intensify and accommodate.A typical example of the conflict of interest in legislation and supervision of the dual-class share structure is internal conflict of interest in the stock exchange as a self-regulatory body. This chapter widely analyzes the advantages and disadvantages of the existing dual-class share structure, then further analyzes the conflicts between business functions and public functions and conflicts between commercial interest and public interest faced by the stock exchange making listing policy decisions, and the effection of the conflicts to the exchange’s decision.Conflict of interest among supervisors is another important aspect. The legislation competition of corporation law between America states, the evolution of attitude in American history for dual-class share structure and the attitude of HKEx for dual-class share structure policy, provide samples for the subject analysis. This chapter deeply analyzes the interest conflict based on the competition between the regulators. A concern here is, will these conflicts in competition lead to "race to the top" or "race to the bottom" ? From the past practice, the change of policy made by legislative and regulatory authorities and the stock exchange under regulatory competition pressure, usually is to decline the registration standards and listing standards, so as to allow the dual-class share structure company to be registered locally or listed. For such a policy change what is conducive or not conducive to the interests of investors, this chapter holds the opinion that there is not an only answer to this problem. In the situation that the system and market conditions allow, such regulatory competition may upward competitive effect, and vice versa is downward competition.The fourth chapter is "interest balance mechanisms under dual-class share structure". This chapter designs suitable mechanisms to balance the interests.To balance the conflict of interests of different level, we need to build a mechanism to balance the interests of different types. For example, to balance the conflict of interest between shareholders, we need to establish a series of mechanisms to protect the public investors which hold less voting rights; to balance the conflict of interest in securities exchange self-discipline management, we need to consider to establish internal supervision mechanism and external constraint mechanism; etc.. For dual-class share structure companies, the conflict of interests between shareholders, the conflict of interests between regulators and within the regulators are more specific, while the interest conflicts between shareholders and creditors, shareholders and employees of the company may be similar to the conflict in the ordinary companies. As the focus, this chapter only mentions the special balance mechanisms under dual-class share structure, but is not involved in the mechanism of balancing of interests which is the same as that in ordinary companies.In the information fairness, this chapter proposes a mechanism of the compulsory information disclosure to balance the interests. Concerns about the public investor rights violations dual-class share structure largely rise from public investor’s vulnerable position in information. Public investors’ s unawareness of the situation under dual-class share structure may aggravate the conflict between the shareholders. To ease the conflict caused by the asymmetry of information, it is necessary to establish the compulsory information disclosure system, to eliminate public investors’ vulnerable position for information getting. This chapter analyzes the theorical basis of mandatory information disclosure system, compares overseas information disclosure of dual-class share structure companies based on Facebook and Alibaba’s prospectuses, and puts forward the main content of mandatory disclosure for dual-class share structure companies.Mandatory information disclosure of dual-class share structure, should at least include the neccesity of dual-class share structure, the specific provisions of dual-class share structure, and the influence on the public investors.In the voting rights balances, this chapter presents the mechanism of balancing of interests including the voting of category system, the exclusion of the voting right and restriction system. When high and low voting shareholders have a conflict of interest, the low voting shareholders are usually in passive or disadvantage because of the the high voting shareholders’ information advantage, influence privilege and other advantages. Different voting system arrangement is agreed in agreement document, the articles of association of the company or other documents, suggesting that in full information disclosure and risk circumstances, buying shares means accepting a disadvantage corresponding institutional arrangements. But blind emphasis on validity and automony of the arrangement of dual-class share structure may allow high voting shareholders to abuse the advantage position and violate public rights of shareholders. In order to balance the two types of shareholders’ interests and realize equality among shareholders,we need to establish certain mechanism to protect the low voting shareholders and to restrict the high voting shareholder. The category voting system, the voting right exclusion and restriction system are proposed for this purpose. This chapter puts forward the suggestion of establishing these systems.In the public investor rights remedy, this paper proposes the relief mechanism of the system of class action and other alternative. Among them, the system of class action is a relatively successful litigation system in America. But the introduction into China also need to be considered on the compatibility with the cultural environment of the legal system of our country, to determine the scope of its introduction and mode. Other alternative relief mechanism mainly refers to the special award established by the government and other institutions supervision department. Compared with the high cost of judicial relief, the relief mechanism is more likely to provide convenient protection for the public interests of the investors.This paper finally puts forward suggestions on the system path of introducing dual-class share structure in our country. Dual-class share structure should be specified through multiple levels of legislation, including the company law, the securities law and other laws, administrative regulations and departmental rules, and securities exchange self-discipline rules. As a relatively safe implementation of system transition, the corporates that may adopt dual-class share structure may be limited to a specific range, including the science and technology industry company and specific state-owned enterprises. For the protection of public investors and the spirit of contract, double ownership structure should only be adopted in or before the company’s initial public offering. At the same time, we should also set up the category voting system, the exclusion and restriction system of the voting right, and diversified dispute settlement mechanism, to guarantee the smooth operation of dual-class share structure in our country. |
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