The Protection Of The Rights And Interests Of Preferred Stockholders In Private Equity Investment

Private equity investment, which is wildly used in capital market has played a more and more significant role in the market-oriented economy. Due to the nature of its free and flexible capital operation efficiency, it financed so many enterprises at each stage of development and added more vitality to the capital market in our country.Therefore, the preferred shares mechanism should be introduced into private equity investment. The private equity funds are regarded as institutional investor. Compared with ordinary shareholders, the private equity funds as the preference shareholders of target enterprises are still legally disadvantaged. Since the Guiding Opinions of the State Council about the Pilot Preferred Shares and the Pilot Measures for the Administration of the Pilot Program of Preferred Shares were decreed and carried out, the status of preferred shareholders in law has been able to clear. However, it is still not detailed enough for preferred shareholders rights protection.In this paper, through a brief introduction of the characteristics of the right of preferred shares and further discusses, the connotation of convertible preferred shareholders’ rights mainly include two categories, one is self-profit right, the other is common-profit right. Among them, dividends distribution, dividends preference, distribution of residual property and redemption right mainly belongs to the category of the self-profit right. Voting rights and consult right belongs to the category of common-profit right. In some literature, convertible preferred share dividends and bonuses are collectively known as the dividend. However, they are discussed separately in this paper in accordance with the related clauses of the Pilot Measures for the Administration of the Pilot Program of Preferred Shares. And at the same time the related rights of investors in private equity investment will be discussed.Through discussing the legislative shortcomings and convertible preferred shareholders in private equity investment of different status of the target company, we should be prepared from two aspects to set up a perfect protection mechanism of convertible preferred shareholders. On one hand, we should not only conclude relevant clause prudently in the investment agreement, but also fully respect the investors and the autonomy of the target company, and not too much intervention in private equity investment in the commercial activities. On the other hand, we should perfect country’s existing preferred shareholders rights protection system to safeguard convertible preferred shareholders’ self-profit right and common-profit right by learning the advanced experience of foreign legislation.The structure and the contents of the thesis are as follows:Chapter one: The characteristics of the rights of preferred shares. Firstly, through the simple introduction of the characteristics of the preferred shares, point out that preferred shares rights mainly depends on the company’s articles of association, and they have certain properties of share options. Secondly, discusses the connotation of the rights of the preferred shareholders, which mainly include the dividend distribution right, priority to dividends preference, distribution of residual property, share repurchase right and voting rights.Chapter two: The current situation of the protection of the preferred shareholders’ rights. Firstly, it introduces China’s legislation status of preferred shares. From the perspective of the legislative process, there is some shortcomings of the protection of the preferred shareholders’ rights. Secondly, it introduces the current situation of preferred shareholders in private equity investment and in different development phase of target companies. Investors mainly use convertible preferred shares as an investment instrument of the target company.Chapter three: The protection of convertible preferred shareholders’ rights from the perspective of investors. Firstly, it introduces the terms about the convertible preferred shares in the investment agreement. The terms of preferred dividends, preferred liquidation, pre-emption rights and buyback rights are the core of the investment agreement. Secondly, it discusses the management of target companies after investment. Investors can take part in enterprise operation and management as shareholders or the management of the target company.Chapter four: The perfection of protection mechanism of convertible preferred shareholders’ rights. It firstly First it analyses the present problems existing in the legal system of convertible preferred shares. Secondly, the connotation of the convertible preferred shareholders’ rights can be divided into two parts of rights. One is self-profit right, which includes the protection of dividend distribution, dividends preference, the right of residual property and the appraisal right of redemption, the other is common-profit right, which includes the protection of voting rights and the inspection rights of convertible preferred shareholders..