Analysis On Shares With Differential Voting Rights And U.S. Dual-class Share Structures

As a core issue of corporate governance, share structure becomes the focus ofcontroversy in the stock listing game between Alibaba Group and Hong KongExchanges. The partnership system proposed by Alibaba Group is similar to the U.S.dual-class share structure, considered to be a violation of the principle of sameshares same right of the HKEx Listing Rules. How to select share structure, insistingon the single share structure of same shares same right, or learning from the U.S. touse the dual-class share structure? It causes the controversy and different attitudesfrom all social circles. The critical point is whether to allow the listed companies toissue shares with differential voting rights.In the US, dual-class share structure is an institutional arrangement arising fromthe connection between the issue of shares with differential voting rights and theinnovation demand of corporate governance structure, which is the epitome of shareswith differential voting rights applied in the market practice. Shares with differentialvoting rights allow company operators to allocate voting rights independently, anddesign the share structure in accordance with the company’s own actual situation topromote long-term development of the company. However, our existing laws don’tallow listed companies to issue shares with differential voting rights. Theorists doubtthe negative effects of dual-class share structure, such as leading to themanagement’s abuse of power, violating the principle of equity equality, and going against protecting the interests of minority shareholders.If Alibaba Group chooses togo public in Hong Kong or the interior of China, it may face some legal obstacles,reflecting the lack of institutional innovation. With the opening of China (Shanghai)Pilot Free Trade Zone, Chinese market economy is developing and growing further,and there will be so various financing needs of new companies that the institutionalinnovation is forthcoming. Otherwise， it will lead to the outflow of somedevelopmental achievement by overseas financing, while it’s bad for the ongoingdevelopment of the domestic capital market. For this reason, this article attempts toresearch the questions about listed companies issuing shares with differential votingrights, and analyzes the dual-class share structure. It also explores how to balance theinterests to maintain its good running in the US, and gains enlightenment to improveour corporate law, securities law and other relevant laws and regulations, to makerecommendations on a clear developing direction of our share structure.This paper is divided into six parts, the specific content described as follows:The first part is a brief introduction of shares with differential voting rights, such astheir meanings, types, qualities, issuing methods and so on. It also analyzes itslegislation and practice in the world, and describes the legislative trend. The secondpart defines the dual-class share structure’s meaning, applicable body, conditions andimplementation. Besides, it compares the dual-class share structure with AlibabaGroup’s partner system to make a preliminary definition. The third part depicts thehistorical evolution of U.S. dual-class share structure and the conflicting andintegrating process with the principle of one share-one right. It summarizes thedomestic and foreign scholars’different academic viewpoints on the dual-class sharestructure. From history background and values orientation, it analyzes the causes ofdual-class share structure and explores the motives and rationality of listedcompanies to issue shares with differential voting rights. The fourth part interpretsthe conflicts of interests in corporate governance and mergers in which the dual-classshare structure exists, and analyzes the conflicts of interests between dual-class sharestructure and corporate performance, social welfare. It studies the negative impactsof listed companies issuing shares with differential voting rights through dual-class share structure’s disadvantages. The fifth part elaborates the conceptual basis of ofthe dual-class share structure in the U.S. and its conjunction with protective system.It reveals how the U.S. achieves a balance among the various interests in order tokeep the stability of the dual-class share structure, and studies how the U.S. resolvesthe negative impacts. The sixth part analyzes the feasibility of dual-class sharestructure in our country, and explores the space of the existing legal system. It usesthe experience of dual-class share structure for reference and defines the futuredirection of Chinese capital markets.