Research On The Interest Balance Of Preference Shareholder And Common Shareholder

The introduction of preference shares is of great significance for capital markets and corporate governance. However, from corporate governance perspective, issuance of preference share means that the company will have new shareholders. How to balance the interests of the preference shareholder and other shareholders will be a problem for company in the process of governance. Balancing the interests of preference shareholders and common shareholders is the most significant problem,and it is the research direction of this article.Combined with the existing domestic and international prictice experience about preference shares, the full text will investigate interests balancing mechanism between reference shareholders and common shareholders under our country company law in both theoretical and practical levels.I hope to make some helpful suggestions on building and improving the system of preference shares.Besides the foreword and the conclusion, the full text will be divided into five parts:Part I-The basic theory of preference shares.Preference shares are shares that have profits and surplus property distribution priority over common shareholders, but the rights of corporate decision-making and management have been restricted.The shares’ nature is company’s equity capital that fuses the advantages of the debt. The shares are the result of the autonomy configuration of equity essentially under commercial autonomy concept.Based on the foregoing analysis, the preference shares have unique commercial value in the capital markets and corporate governance.Part II- Imbalance risk of interests of preference shareholders and ordinary shareholders.Our country constructs corporate governance mechanism around a single form in the long-term,so preference shares will impact the traditional concept of company law and our system.If there is no system of balancing the interests,debt agreement of preference shares and voting advantages of common shares may result in interests imbalance.From the analysis of the existing domestic and international practice, the unbalanced interests may arise in the dividend distribution, share repurchase,company merger and other circumstances.Part III –The reasons analysis of the interests imbalance between the preferred shareholders and the common shareholders. Based on the comparative analysis of share equity, the following two theoretical perspectives help to understand the basic logic to the imbalance of the two types of shareholders’ interests: Firstly, the theory of "heterogeneity". The differentiated design of equity makes the characteristic of "heterogeneity" between the preferred shareholders and common shareholders come into being, which is embodied in the following three aspects: the interest orientation, risk appetite and equity power. Secondly, the dimension of shareholders agency theory. The disproportionate allocation of preferred stock’s participation rights and economic rights, which brings the real agency problems between the preferred shareholders and the common shareholders. The control right’s lack of checks and balances will lead to the raise of the agency cost between the two kinds of shareholders, and result in the imbalance between the shareholders.Part IV-The interests balance of road to the preferred shareholders and the ordinary shareholders. The formation of the imbalanced interests stems from the non-rational allocation of shares in the rights and obligations. Therefore, in the process of balancing the interests of preferred shareholders and ordinary shareholders, it needs to follow such basic path: Firstly, legal rights of balances to the checks of preferred shares and common shares. Secondly, the evolution of corporate law fiduciary duty being stratified, which includes the fiduciary duty of directors’ and shareholders’.Part V-The interests balance of the preferred shareholders and common shareholders in our country. In this part, it will be back to reality. Firstly, it may be sort out the development process and system specification of china preferred stock, and then analysis the relevant balance system with the perspective of comparative and institutional capabilities. By the way, proposed some strategies to improvement of relevant system, which is specifically composed of issuance system, the voting system resurrection, classification voting system and exit system, information disclosure system, the relief system.