Research On The Protection Of Preferred Shareholder’s Rights

The preferred stock(also called preference stock) is a kind of equity instrument which gives its holder a bundle of rights in preference over the common stock holders in relating to the attribution of dividend and the assets left when dissolved. The features preferred stock shows and the limitation of its voting rights are commonly viewed as an exception to the principle of the shareholders’ equality, leading to the disability and embarrassment in regarding to the protection to the preferred shareholder, which is an important and significant task from the theoretical and practical view of corporate law. However, only by explaining and applying the shareholders’ equality principle can we find a guiding line and a powerful weapon in dealing with the protection of the preferred shareholder.The presence of preferred stock gives the corporation an efficient way to raise capital and keep the controlling structure stable, which gives a legality to the exception of shareholders’ equality principle and, at the time, make it important for the directors to find a new way to managing the mutual relationship among different shareholders and between shareholders and the corporation itself. We can’t find other useful ways unless the emphasizing of shareholders’ equality principle along with the admiration to a faithful and diligent duty of the directors. The decision of whether to announce a dividend relies on the business judgment rule of the directors, who are harbored from taking responsibility as long as the judgment is made on the basis of full acquirement, digestion, disclosure of available information, with a careful, diligent attitude for the benefits of the corporation in the absence of confliction of benefits.The significance of contractual protection shall not be neglected because of the contractual property of the preferred rights, however it’s not an efficient way to protect the preferred shareholder’s right by contract, because once the items are drawn, and a contract is formed without any disagreement, although the items are inclined for the benefit of the issuing corporation.Nowadays we can’t have a clear prospection whether the preferred shareholders’ interest will be impaired or not, but from a historic view, the risk is high. All we can do is to investigate the theory and practice from abroad. Japan has a long history in the issuing and protecting of preferred stock, as well as similar systematic structure of law and the alike environment of economic development and corporation management. From the investigation into the mechanism of preferred shareholders in Japan, we can have a clear impression about the mature regulations of shareholders’ meeting, which should be adopted in the near future in the adaption of the company law.