The Study On Dual-class Share Structure In Listed Companies

For the joint-stock companies, it seems there is always a contradiction betweenfundraising and control maintaining over the company. During the development of acompany, fund raising is needed constantly. However, fund raising frequently has astrong impact on the extent of control power. In accordance with the majority ruleprinciple, the major controller’s power shall be weaken or ever lost in suchproceeding. In order to avoid losing the controlling status, company managementalways adopts specific institutional arrangements, for example, cross-shareholding,pyramid structure, voting trust. The most obvious is dual-class structure. The ownerof a company who intends to raise money from the public with his or her controlpower maintaining shall classify all the shares into different grades. Innershareholders hold the shares with super voting right, that are more than one vote pershare but cannot be transaction in the share market unless the super shares transfer tothe shares with one vote per share.While public shareholders hold the commonshare with one vote per share but can be circulation in the share market. It is worthnoting that differences between these two kinds of shares are only focus on the rightto power. Thus, a dual-class structure is formed among all the shareholders of thecompany.The dual-class structure originates from America and is commonly used in thecompanies of many countries around the world. Compared with the single-stockcompany, the dual-class structure brings at least three advantages to the companies.First of all, the company with dual-class stocks tends to be more stable onmanagement. On the one hand, the originator or the substantial shareholders withstable control power prone to pay more attention on the long-term interest instead ofthe employers, and lead to more rational decision. On the other hand, absolutelycontrolling by the managers may effectively resist the hostile buy-out, which makesbetter environment for the company development.Secondly, the dual-class structurelowers the cost on managerial resource and commercial risks. Stable control power can motivate the managements’ enthusiasm so that it can take low turnover rate andthen reduces the labor cost.Besides, dual-class structure effectively balances theinvest targets of different investors, thus enhances the efficiency of the stock marketby giving controlling interest to those who do company management, while allottingfinancing interest to common investors.From the other side, dual-class structure bares hot disputes among scholars forbreaking the conventional principle of one share one vote. Some scholars are worriedabout the dual-class structure shall lead the inequality among the shareholders andthe shareholders with super voting rights may take advantage of voting rights todamage the interest of the minority shareholders.In fact, with the vibrancy of capital market, an increasing number of countrieshave loosened the limitation on structure. On the condition of China, listing systemlacks of enough inclusive to dual-class structure. How to meet the emerging marketneed to corporate governance is the important subject needed. How to make use ofdual-class structure to reform state-owned enterprises is also the big problem. At thesame time, to overcome the disadvantages of dual-class structure, listing rules,information disclosure, weak investor protection and other related systems must beconstructed to find the balance of reform and development and investor protection.