Legal Issues On Shareholder/Investor Rights Protection In Real Estate Investment Trusts In America

The legal system of Real Estate Investment Trusts (REITs) was firstly created under the American tax laws in the 1960s. As a special financial instrument investing in the real estate market, REITs play a positive role in the aspects of broadening the financial methods for real estate market, effectively developing and utilizing real estate properties, as well as expanding the capital markets. The transplant of REITs system is of great importance for the perfection of real estate capital market, as well as for the promotion of real estate markets in a continuous, stable and healthy way. Local scholars and practitioners in these fields have already studied and done practical experiments on the introduction of REITs system into China. However, few of the scholars and practitioners have ever focused on the issue of shareholder (investor) protection in REITs. The author here believes that we must pay attention to the mechanism of investor protection in REITs structure, so that we can promote a smooth development of REITs system in China and achieve our goals as solving the problems of financing in real estate markets and benefiting the investors in REITs.This paper is going to focus on the legal issues in REITs shareholder (investor) protection under the background of the Untied States. This article is composed of five chapters. The first chapter is the preface of the article. A brief introduction of the background for choosing this field as the topic, the analysis methods used in this article and the study on the issue of REITs investor protection both in China and abroad. The second chapter of the article will focus on the basic legal issues of REITs from the perspective of American REITs laws. The author reviews the legislative motive and background for the creation of REITs by the legislature and gives a brief introduction about the development of REITs to date. This article then analyzes the basic structures of REITs from the perspectives of organizational types, formation methods and the legal relationship among the REITs parties. It also illustrates the basic operational types and newly invented REITs structures.An elaborate analysis of the problems of shareholder protection involved in REITs structures and the possible solutions will be discussed in the third chapter. This chapter focuses on the issues of minority shareholder protection under the circumstances of interest conflicts among different types of shareholders as well as the conflicts among the boards and shareholders from the perspective of corporate governance. It also studies the issue of shareholder protection under the background of REITs private placements. Then the author analyzes the shareholder protection measures in REITs laws evolution and the application of Business Judgment Rule in REITs boards. The author comes to the opinion that there can be no efficient protection of minority shareholders, provided that business judgment rule is applied in all REITs structures without taking into consideration of the peculiarity of REITs structures. And the author is of the opinion that a much stricter standard, one of which can be the entire fairness standard, shall be applied in cases involving the issues of REITs boards resolutions. As to the shareholder protection in private placements, the author gives a systematic study of the applicable laws and regulations for REITs private placements, and, studies the relevant rules and measures for shareholder protection provided by the Securities Act of 1933 and the SEC.The fourth chapter will discuss the practice of REITs and the possible REITs modes in China. The author studies several of the quasi-REITs cases and illustrates the problems in practices and deficiency in the pertaining laws and regulations. With the American REITs shareholder protection measures in mind, the author discusses the possible issues of shareholder protection under China REITs (C-REITs) and gives suggestions as follows: the activities of the REITs managing party, whether independent contractors or independent advisers, shall be strictly regulated in the relevant C-REITs legislations; private placements shall be improved to provide diversification for the financing measures of C-REITs as well as to provide more protection to investors in REITs private placements; and the introduction of prudent investor rule in governance of REITs shall be an effective way to provide protection to REITs shareholders. This article concludes that, REITs shareholder protection plays one of the key roles in the successful practice of C-REITs. We can only achieve this goal by providing efficient protection to shareholders in connection with others.