Research On The Restriction System Of Special Voting Rights

Although special voting shares are one of the basic directions of corporate governance innovation,attention should be paid to the risks in the operation of this system and to establish a tailored restraint system.The risks of the system concerning special voting shares are mainly manifested in the disruption of the basic order of corporate governance and the harm to the property rights and interests of the company and its shareholders by various abuses that can occur at various stages of introduction,negotiation and operation.In this regard,to limit the abuse of special voting shares,it is necessary to design countermeasures by considering the legal policy orientation of security and efficiency,freedom and coercion,ex ante and ex post,and administrative and self-regulation,in addition to developing the institutional design in terms of avoiding excessive introduction,eliminating inequality between contracting parties in consultation,limitations on voting abuse,and special obligations of directors.Following the introduction,this paper consists of six chapters.Chapter Ⅰ,the basic concept of legal regulation on the special voting shares.The legal risks of special voting shares are firstly analyzed theoretically,and then the legal policy orientation and institutional path of legal constraints of special voting shares are sorted out on this basis.Traditional agency theory,corporate life cycle theory,and corporate contract theory negatively reveal the risks of increased agency costs and the destruction of corporate democracy associated with special voting shares.While,the theoretical innovations such as trait vision theory,cost of being agent theory and shareholder heterogeneity theory reveal positively that the above risks are controllable and acceptable.Preventing the risk of abuse on important voting matters in shareholders’ meetings,risk of fraudulent disclosure of risk information and risk of perpetual control are the focus.The conclusions of the theoretical analysis are supported by the empirical examination.An empirical examination of the risk of special voting shares revealed that close companies are at risk of abuse on key regulatory matters such as Articles 16,148 and 166 of the Companies Act.In listed companies,the abusive risk behavior manifests itself differently due to the differences in the form of rights set for special voting shares in different companies.For companies listed in China’s mainland,they need to focus on the prevention of risks in matters such as profit distribution,change of main business,internal control of connected transactions and external guarantees,perpetual control risks,and information disclosure.In China,there is no need to worry about the risk of regression of corporate democracy that may occur in the U.S.due to the concentration of equity,and the Party leadership can effectively reduce the legal risk of introducing special voting shares in state-owned enterprises.However,China has problems of power rent-seeking under special political and business relations,poor independence of intermediaries in performing their duties in the context of a relational society,manipulation of information by controllers,poor integrity of the securities market,so that the risk of disclosure fraud in listed companies may be higher than in other countries or regions.Chapter Ⅱ,restrictions on voting matters of special voting rights shares.It mainly focuses on the differential allocation structure of the voting rights of the special voting shares themselves,and pays attention to the limit of freedom created by the differential structure.In order to protect ordinary shareholders’ reasonable expectation of corporate governance and prevent the risk of abuse of special voting rights in voting matters,the design of restrictive measures should follow the principle of "maintaining the basic configuration of shareholders’ meeting rights",and is mainly realized in two types of basic measures: exclusion and restriction.In terms of exclusions,both organizational and transactional matters can be covered.First,with regard to the restriction of voting on organization-type matters,because the special shareholders’ subsequent amendment of the articles of incorporation will undermine the restraining function of the market mechanism and the dominant position of the special shareholders leads to the dilemma of renegotiation for the ordinary shareholders,the scope of voting matters targeted by the special voting rights needs to be restricted by a typology.To this end,(1)limit the special voting rights of special voting shareholders in matters of articles of incorporation amendment,or exclude special voting rights from matters of articles of incorporation amendment.This is because provisions that change the statutory supervisory authority of the shareholders’ meeting and exempt the fiduciary duty by amending the articles of association shall be deemed invalid;amendments to the articles of association that do not harm the rights and interests of ordinary shareholders,such as the addition of defensive rights of the shareholders’ meeting,shall be adopted by the two-thirds majority mechanism of the Company Law.(2)The application of the rule should be excluded in the election of independent directors,and the special voting right should be insisted on the voting mechanism of "one share,one right",because the double voting system tends to form an election deadlock.(3)The rules shall be excluded in matters of merger,demerger,dissolution and other major changes.This is because there is a risk of significant loss and abuse of voting rights in these matters.(4)Application should be excluded in the case of changes in the form of stock rights,such as stock splitting plans,because the introduction increases the risk of separation of powers.(5)It should be excluded from application in specific transaction-type matters,such as Articles 16,21,121,148,and 216 of the Company Act,where the shareholders’ meeting is required to vote by law.(6)The use of special voting rights by special voting shares should also be restricted in relation to the basic expected guarantee of property income of common shares.The voting may be introduced,but the application of the principle of substantial fairness to shareholders must be restricted,and the "different responsibilities for the same share" must be reflected behind the "different rights for the same share" for special voting shares.Ordinary shareholders bear the loss in the allocation of voting rights such as the lack of election rights,so based on the concept of fairness,the right of ordinary shareholders to gain property should also be protected in terms of income rights.For this reason,the high-voting portion of the special voting shares should be prohibited from voting in matters such as changing the company’s main business and high-risk investments that seriously impair the expectation of ordinary shareholders to bear losses.In terms of protecting the rights of ordinary shareholders to dividends,the law can mandate the setting of dividend provisions and a special shareholder commitment system in the articles of incorporation at the IPO stage.Ex post facto amendments to the dividend provisions need to exclude the high voting power of special voting shares and other restrictive institutional measures.Chapter Ⅲ,restrictions on the introduction of a consultation process for special voting shares.The main focus is on the obstacles to freedom of expression and overcoming them for all types of shareholders in creating shareholding structure proposals for special voting shares.The great variation in the contractual capacity of the parties is one of the main reasons for the restrictions imposed by the law on the application of the market for special voting shares at the consultation stage.The purpose of restriction is to achieve fairness in the contracting process,and the legal strategy of restriction should be based on regulatory measures.Judicial review comes into play when regulation fails.In the event of untrue disclosure,misunderstanding,or coercion in the contract,shareholders can initiate a lawsuit for contract revocation,so as to claim the invalidity of some provisions introducing special voting rights and other litigation measures to achieve a remedy for their rights.As for regulatory measures,the law should strictly restrict the setting up of special voting shares after IPO,and only allow exceptions to the strict prohibition when promoting the company’s flexible operation and financing and other capital restructuring,but this is subject to the control of a strict voting procedure of a double pass by an absolute majority vote after a unanimous vote of independent directors and a "one share,one right" vote of shareholders’ meeting.In addition,on the disclosure of special risk information of special voting shares,the system design can be launched in terms of content,manner and procedure.Among them,defensive measures and possible deficiencies of risks such as high-risk investments,market competitiveness of main business,and decision-making procedures of company dividends should be included to improve the completeness of disclosure contents;various ways of disclosure such as warning marks,information summaries,plain expressions,and internet-based disclosure should be adopted to improve the coverage of disclosure;a commitment mechanism for disclosure responsible personnel,a brokerage follow-up system,an intermediary The disclosure of information should be enhanced by setting up procedural mechanisms such as the commitment mechanism of disclosure responsible personnel,the brokerage follow-up system,and the recusal system of intermediaries.Finally,in the enhancement of investor contracting ability,strengthening the investor risk education system and constructing the investor suitability obligation of brokerage firms should become important basic systems.Chapter Ⅳ,restrictions on abuse in the exercise of voting rights of shareholders with special voting rights.It focuses on the specific exercise of special voting rights,examines what constitutes voting abuse,and analyzes the legal measures to limit it.First,the determination of abusive behavior includes both the elements of determination and the concept of determination.According to the paradigm of civil rights abuse theory,the elements of special voting rights abuse should include exercising special voting rights not within the limits of rights,exercising special voting rights in a manner that violates the fiduciary duties of the controlling shareholder,and exercising special voting rights to the detriment of the interests of the company.The judge shall examine the special voting right abuse based on the three constitutive elements of the special voting right abuse determination.Adherence to modesty,typology and dynamic balance are the basic concepts that should be adhered to in the determination of abusive acts of voting rights of special voting shares.Among them,the dynamic balance addresses the complexity and diversity of voting matters and the difficulty of the three elements in some difficult cases;for this reason,the dynamic identification elements such as the degree of conflict of interest,the type of voting matter,the voting method and the voting result are analyzed in a comprehensive manner.Secondly,the legal consequences of the abuse of special voting rights are manifested in three aspects: the resolution formed by the abuse of special voting rights is invalid;the abuse of special voting rights does not give rise to the legal liability for loss of rights by reason that Article 3 of the Judicial Interpretation of the General Provisions of the Civil Code does not stipulate whether there is a loss of rights;the abuse of special voting rights requires the perpetrator to bear the liability for tort damages in accordance with Articles 20 and 21 of the Company Law.Chapter Ⅴ,examination of the special obligations for directors of special voting stock companies.It focuses on the unique governance mechanism of special voting stock companies that imposes special requirements on directors to perform their duties.Reducing the horizontal agency costs among shareholders of special voting stock companies and filling the incompleteness of special voting stock contracts can be justified reasons for requiring directors of special voting stock companies to fulfill special obligations.The special obligations of directors in such cases include independent judgment,equal treatment of shareholders,and supervisory obligations.Among them,the duty to supervise can be divided into the duty to supervise the compliance operation of special voting shares and the duty to discourage special shareholders from making mistakes in good faith.Chapter Ⅵ,proposing suggestions for the improvement of the relevant system in China.The rules of China’s exchange are reviewed and suggestions for improvement are made based on the identification of problems.First,with regard to the rules on restrictions on significant voting matters,it is proposed to amend Article 43(2)of the Company Law to include the expansion of the separation of powers in the voting items,and to clarify that only "one share,one right" voting is allowed in the calculation of voting rights;also,it is proposed to amend the rule of "one share,one right" in the rules of the Stock Exchange.In addition,it is proposed to amend the "one share,one right" voting rule in the rules of the Stock Exchange to explicitly require that matters such as share splitting plans for special voting shares,unfair connected transactions approved by the shareholders’ meeting,changes to the main business,and high-risk investments be returned to the "one share,one right" voting mechanism.Secondly,with regard to the improvement of special voting rights restrictions at the consultation stage,it is suggested that the breakthrough rule should be abolished in our exchange rules,the continuous unchanged voting rights ratio rule should be appropriately varied,and a strict procedural system should be set up;and the risk information disclosure system should be improved in terms of content,manner and procedures.Again,with regard to the restriction on the abuse of special voting rights,it is proposed to amend Article 124 of the Company Law to add rules on the disclosure obligations of related persons and to provide for a recusal system for voting by related shareholders.In addition,we propose to amend Articles 16,121 and 124 of the Company Law to clarify that the shareholders’ meeting can only vote "one share with one right" in these articles.Finally,with respect to the special obligations of directors,it is recommended that Article 147 of the Company Law be amended to add the obligation of directors to exercise independent judgment and treat shareholders equally.The exchange rules should add special obligations for directors of special voting stock companies,such as the obligation to exercise independent judgment,the obligation to treat shareholders fairly,and the obligation to supervise.