Research On China’s Voting Trust

Voting Trust is a clever combination of shareholders’ voting rights and the trustsystem.As a common-profit right, voting right at the meeting of the shareholdersdirectly affects the policies of the company and is closely related to the managementand operation of the company, shareholders’ equity as well as the interests of thecreditors. The essence of voting rights is the right to control the company. Stockrights is the carrier of voting right, and the nature of common-profit of voting rightsdetermines the rights to know of other shareholders guaranteed when one shareholderimplementing voting trust. Therefore, the transfer, registration and public notifying ofstock rights constitute the necessary elements of the voting trust.In voting trust, the trustor entrusts the voting right to the trustee on the basis oftrust, and the trustee implements his voting right in his name for the interest ofbeneficiary or other purposes in accordance with the trustor’s idea. The trustee shallissue a voting trust certificate to the trustor and the trustor achieves his interest by thevoting trust certificate. Because stock rights could be transferred，so the voting trustcertificate is also transferred with the transfer of stock rights. The holder of the votingtrust certificate is the beneficiary in the relationship of voting trust. The frequenttransfer of beneficiary is the difference between the voting trust and other commontrust.The most essential characteristics of the trust system are the separation ofownership and beneficial rights, and the independency of the trusted property. Thetrusted property is independent, and the formal ownership and real ownership of trustproperty are separated. Under the management of the trustee, the trusted property isoperated independently from the operation of the properties of the trustor, trustee, andthe beneficiary, and it is not under the claim of creditors of the trustor, the trustee andthe beneficiary. In common law, the theory of separation of ownership and the beneficial right is called” dual ownership", i.e. separation of legal title and equitabletitle.Based on the above features of voting right, trust system, and the voting trust,laws set up some special rules to regulate voting trust.Voting Trust has a unique system value. Voting trust is widely demanded in ourbusiness practices, while China also has the foundation for the institutional transplantof the voting trust. This paper aims to discuss the necessity, feasibility and the visionof system of voting trust system by studying the theory, legislation and practice on thevoting trust on the basis of China’s current conditions and the existing system and thebackgrounds of economy and culture. This paper has four parts:The first section is a summary of the voting trust. Starting with the concept ofvoting trust, the author introduces the history and present situation of the voting trust.The United States, generally speaking, is the original country for voting trust and sofar the most mature one with relative laws written into most states. Japan, having nowritten provisions though, enjoys a long history of practicing, making it a symboliccountry practicing continental legal system. China’s Taiwan province also practicesmergers&acquisitions act of enterprises. Then the author explores the subject, object,the establishment of and transfer of the voting trust.The second section focuses on the necessity and feasibility to establish votingtrust system in China. Voting trust functions in a comprehensive way. Forshareholders, it helps to enhance their existence in terms of final say. For company asintegration, it contributes to stabilize management, improve efficiency as well asfinancing. For creditors, it secures their interest. As an old saying goes, every coin hastwo sides. Voting trust has its limitations as well. For one thing, discrimination andunfairness do happen among shareholders; for another thing, equity transfer faceschallenge sometimes while monopoly exists. Through the comparison of voting trust,voting proxy, proxy solicitation, voting agreement and other related systems, theconnotation and value orientation of the voting trust system are stressed, whichenables shareholders to make rational choices suited to the specific situations in thepractice of indirect-executed voting right. In accordance with practical need on occasions of state–owned enterprise reorganization, financing and equity divisionreform, the author is discussing the feasibility and realistic foundation of institutionaltransplant.The third section points out some problems in this transplant and offers the wayout. Generally speaking, China practices continental legal system, which differs fromthe U.S. one. As for classification, trust law is affiliated to property law in AngloAmerican legal system. China has to transform it in large scale so as to adapt to theactual conditions. To transplant it, authorities are supposed to take trust law, contractlaw, corporation law as well as securities law into account so as to keep off conflictsamong laws and maintain the cohesion. At the micro level, the paper picks threeaspects to discuss the designation of voting trust system. The trustee is the nominaltitleholder of the share and actual exerciser of voting right, thus lies at the core ofvoting trust relationship. As a consequence, appointing a trustee is of great essence.He/she must go with purposes of the trust and entitle with common characters of agood trustee. In voting trust, handling conflicts between trustees and beneficiariesproperly determines the height of the system. On issues like dividends to shareholdersand equity transfer etc, ensuring the final say of beneficiaries and set the validity canhelp to convert conflicts. In terms of listed companies, the voting trust may influenceshare price and lead the investment. Therefore, the trustee is obliged to disclosenecessary information to shareholders.The fourth section provides suggestions for establishing voting trust in China.Based on studying the legislation and practice on the voting trust of some countriesand regions such as United States and China’s Taiwan province, the author comes upwith blueprint of China’s voting trust system.