On The Deficiency And Perfection Of The Institution Of Classified Shares In China

The institution of classified shares is such an institution that classifies shares into different classes and series. These classes and series may differ in voting rights, dividend rights, liquidation rights, redemption rights, conversion rights and so on. According to this institution, shares may be customized in an almost infinite number of ways; this flexibility allows considerable room for planning of shareholding structure. This paper is divided into four chapters.The first chapter introduces the basic concept of the institution of classified shares. Based on the definition of the institution of classified shares, this chapter introduces the application of classified shares in corporation practice especially. Classified shares are extensively used in practice to achieve the ideal shareholding structure, to protect the rights of minority shareholders, to form a poison pill plan to defense the hostile takeover and so on.The second chapter reviews the institution of classified shares in our country and discusses its deficiency. First, our company law doesn't authorize corporations to issue classify shares explicitly. As a result, a lot of corporations dare not to use classified shares in practice because of the uncertainty of their validity. Second, stipulations on the institution of classified shares in our company law is not detailed enough to direct the application of classified shares in practice. Third, the classified voting system is a requisite part of the institution of classified shares, but there is no such mechanism in our country. Finally, our company law insists on the classification of common shares and preferred shares, which may derogate the flexibility of the institution of classified shares.The third chapter expatiates on the basic content of the institution of classified shares of America based on the Model Business Corporation Act of America. The institution of classified shares of America allows corporations to authorize a wide range of classes and series within a class. The basic content of the institution of classified shares of America consists of three parts--- the subjects who have the power to divide shares into classes or series, the limits of authorizing shares and the measures to protect class-rights.The fourth chapter discusses the enlightenment we may get from the institution of classified shares of America and gives some advices to perfect the provision of our company law about classified shares. The institution of classified shares of America is based on a set of fundamental institutions, including the authorized capital system, the central position of the board of directors in corporation governance and the particular classify method of corporations of American corporation law. Lacking or deficient of these supporting institutions restricts the application of classified shares in our country. To perfect the provision of our company law about classified shares:First, we have to improve our legislation on the institution of classified shares. Second, we need to change some fundamental institutions of our company law to support the application of classified shares. Finally, we should encourage the practical usage of classified shares based on the existing institutional background.