Research On Dual-class Share Structure Legal System

This paper takes the dual-class share structure legal system with different voting rights arrangement as the research object,and takes China's promotion of economic innovation development and global capital market competition as the research background,and takes the agency problem regulation between controlling shareholders with super voting rights and medium and small shareholders with weak voting rights as the basic approach.This paper comprehensively uses the method of normative analysis and functional comparison to demonstrate the legal basis of dual-class share structure system,and draws lessons from the advanced experience of the developed capital market outside China.By deconstructing the two pillars of China's current dual-class share structure system—the core rules of preferred stocks and differentiated voting,this paper analyzes the possible problems that affect the realization of the function of the default system,and proposes a feasible solution.This paper aims to achieve a dynamic balance between the company's founder's control vision and the goal of safeguarding the legitimate rights and interests of small and medium-sized shareholders,and improve legal rules of the dual-class share structure to fits the China's reality.The dual-class share structure is a departure from the principle of “one share and one vote” in the traditional company law.The latter is based on the wrong logic premise of homogenization of shareholders' interests,and has many defects,such as restraining the company's self-control space,failing to meet diversified shareholders' interests preference,increasing the cost of corporate control concentration,and leading to substantial inequality among shareholders.Therefore,it has been gradually corrected by the legislation of various countries.Dual-class share structure makes non-proportional allocation of voting rights and profit rights,allowing the company to issue shares with different voting rights.The shares with higher voting rights are held by the founder or management of the company,while the shares with lower voting rights or even no voting rights are held by public shareholders.This structure fully respects the company's autonomy,suits the diversified investment preferences of heterogeneous shareholders,and helps to inspire the founder's innovative development,realize the entrepreneur's trait vision,and promote the company's long-term value growth.Therefore,it is favored by more and more innovative companies.However,it should also be noted that,in addition to the advantages mentioned above,the dual-class share structure system may also lead to the risk of aggravating agency problems and leading to the imbalance of internal supervision of the company.This needs to be regulated by the regulatory strategy and governance strategy of reducing agency costs in the company law.With the development of economic globalization and the intensification of competition in the capital market,the dual-class share structure system presents a tendency of convergence in the world.On the one hand,in order to promote innovation and improve economic efficiency,the legislatures of various jurisdictions generally introduce category stock system in the company law,such as the types of shares that the company can issue,the content of each share,the conditions for the issuance of shares,and the types of equity changes conditions and against shareholders' benefits,classified voting procedures,such as specific content,allow the freedom to choose company based on their actual needs.On the other hand,in order to improve the competitiveness of the capital market and attract the listing of global companies,the stock exchanges of various countries have revised the listing rules to allow dual-class share structure companies to go public.For example,the listing conditions,shareholder qualifications,corporate governance standards and information disclosure requirements of dual-class equity structure companies are clearly stipulated.While attracting innovative enterprises to be listed,they also pay attention to the strict prevention of the risk that it may lead to the deterioration of agency problems.From the perspective of extraterritorial legislation and exchange listing rules,the legal regulation strategies adopted for the potential agency risk of the dual-class share structure can be divided into two categories: regulatory strategies and governance strategies.The regulatory strategy tries to directly restrict the behavior of controlling shareholders by strictly stipulating the applicable conditions of dual-class share structure.In this regard,the legal mechanisms selected by each jurisdiction mainly include: First,the company access restrictions apply.If a dual-class share structure is required,the listed company must be an innovative enterprise,its market value must reach certain financial targets,and can only be adopted before the initial public offering and listing.Second,the qualification of shareholders with super voting rights is limited.If required,it must be a director of the company,and the amount of shares held by the company is not less than a certain percentage.Third,the super voting rights exercise restrictions.For example,the maximum voting weight that can be exercised by the super voting rights is limited,and the scope of the exercise is limited.Fourth,the existence of the supervoting right is limit.In case of any trigger event such as share transfer,disqualification of the subject or dilution of the shares,the super voting shares will be automatically converted into ordinary voting shares.Fifth,limit the amount of shares of weak voting rights issued by the company.The governance strategy is introduced through the empowerment and independent supervision mechanism,in order to enhance the ability of the weak voting shareholders to check and balance the shareholders of the super voting rights.In this regard,the legal mechanisms adopted by each jurisdiction mainly include: In this regard,the legal mechanisms adopted by each jurisdiction mainly include: First,the establishment of a class voting mechanism,which may affect the interests of class shareholders,must be passed by a separate resolution of the class shareholders.Second,the weak voting shareholders are endowed with special relief rights,such as the right to resume the exercise of voting rights and the right to request share repurchase.Third,enhance the independence of independent directors and give them greater power to supervise and control shareholders.In order to facilitate the financing of science and technology innovation enterprises and enhance the international competitiveness of the local capital market,China has gradually formed a dual-class share structure legal system with priority shares and differentiated voting as the two pillars in response to international development trends.While affirming its positive significance,it should not neglect possible problems,such as incomplete legislative system,inadequate protection of shareholders with weak voting rights,and imbalance of supervision mechanism.This can be solved by the following ways: First,amend the company law to establish a complete dual-class share structure system.Second,improve the class voting mechanism,reform the voting rights to resume exercise and redemption rights,expand the main body of conversion rights,establish the right to repurchase claims of dissident shareholders,and strengthen the protection of shareholders with weak voting rights.Thirdly,the internal supervision mechanism of the company should be reformed to enhance the dual supervision ability of the independent director and the board of supervisors for controlling shareholders.Fourth,strengthen the control of shareholders' fiduciary duty,so that their exercise of control is bound by legal responsibility.Fifth,improve the standards of information disclosure obligations to ensure public investors' right to know about investment risks.