Construction Of The Preferred Stock’s Legal System

As a active financial instrument in the world, Preferred Stock have a significant effort onthe development of the capital market.Preferred Stock is a special type of shares, which isissued by limited liability company. And it is symmetrical with common stock and has thepriority when the company divides its profits and has the bankruptcy liquidation. The priorityof the Preferred Stock is mainly reflected in two aspects, which are the distribution of thecompany’s surplus and the distribution of the residual property. But the right of priority inthese two areas is based on the giving up the right of decision-making. The Preferred Stock isa convenient financing tool for the issuers, and its nature of priority attracts many investors.Preferred Stock has an irreplaceable role in the field of investment and finance, and capitalmarkets have a great demand for it. Although the Preferred Stocks have a great system value,there is no clear arrangement in our Corporation law and Securities law. Last year the StateCouncil decided to carry out some pilots of Preferred Stock, and this year the CSRCpromulgated the “Preferred Stock pilot management approach”, which provides anopportunity for the development of the Preferred Stock.The article is intended to discuss the necessity of the existence of the system ofPreferred Stock, which is based on the analysis of it. After this, we want to seek ways to buildup the legal system of the Preferred Stock. This paper researches the question of theconstruction of the Preferred Stock’s legal system from the following three aspects.First, Preferred Stock system has a history of hundreds in foreign countries, after nearlya century’ development, it has become quite mature. As a financial toll, Preferred Stock isintroduced to China, which will meet the trend of international capital markets’ development,and will also adapt to China’s actual situation. First, under the background of internationalcapital’ injection in China, Chinese enterprises’ issuance of Preferred Stock timely, not onlyexpands our financing channels, but also controls the enterprise firmly. Secondly, ourshareholding structure is unreasonable, which hinders the development of China’s capitalmarket. If we introduce the system of Preferred Socks, the shareholding structure of our country can be improved, and our capital market will progress toward the direction ofscientific and rational. Once again, our enterprises are faced with financing problems, and ourinvestors are faced with the problem of single investment channel at the same time. Theconstruction of the system of Preferred Stock can provide a way to solve the above problems.Second, no matter what kind of system to be constructed, we need to consider theirenvironment and learn from advanced experience of other countries, and no matter what kindof system is implemented, there must be a set of systems to match up. To construct the systemof Preferred Stock, we need to inspect the system foreign Preferred Stock, combined withChina’s specific context, to absorb useful experience. In the aspect of the legislative model,we should learn more from the practice of the civil law countries, to take the legal type oflegislative model, and leaving some space to the company. In the process of the constructionof Preferred Stock’ system, we need to take into account of the issuance of Preferred Stock,the protection of preferred shareholders’ right, the supervision of the issuing company and soon. Only in this way can we guarantee the smooth implementation of the system of PreferredStock in our country.Third, there will be some obstacles in the process of the construction of the system ofPreferred Stock, because our capital market is still not mature enough and there are factorsthat come from the state-owned shares, common stock and company management. As long aswe have enough determination, these obstacles can be overcome. Our law leaves a certainamount of space for the establishment of the system of Preferred Stock from a point of viewof our practice of the Preferred Stock. In the design of specific legal, we should mainlyamend the relevant provisions of Act, and we should take implementation rules that issued bythe state council as a reference.