Listing Company Differential Voting Rights Investigation

This paper probes into the topic of dual class equity, dealing with series of problems raised by the design of this structure in the context of public holding company. Given the debate in Hong Kong concerning the site of initial public offering of Alibaba group, there are useful insights to be gained from the perspective of comparative law, experience from the United States markets surrounding the issues of dual class voting structure in the future. Then, the paper makes a review of the most controversial issues concerning the adoption of dual class equity and makes a brief comment each.The paper can be divided into four parts.The first chapter focuses on the analysis of the motivation, design and the method of implementation of dual class voting structure. There are at least two hypotheses explaining the motivation of this, namely the compensation mechanism for the predominate shareholders and the reaction to the predatory takeover strategy. The first hypothesis is confirmed by the analysis of the prospectus of Google corporation. and the second hypothesis is reasonable from the historical background of its emergence. In practice, there are at least four means to achieve dual class voting structure:exchange offer, special distribution, voting right alteration and initial public offering.The second chapter makes a deep investigation of the United States practice of dual class equity pivoted on the background of 19c-4 rule’s design,contents and its impacts and rules concerning dual class equity structure and its regulatory strategies applied.The third chapter makes an economic analysis of the dual class equity structure and its regulatory implications. The implications of the theoretical analysis lie in that an initial owner has an incentive to choose a value-maximizing security-voting structure since he bears the full consequences of his actions through the effect on the prices of the company’s securities. In this case, there is no need for an intervention, otherwise, an increase in transaction cost as a result. However, in a situation when the predominate shareholder utilizes a privilege of his status making a coercive action to public shareholders, regulatory is a must in this situation. The first possibility is to empower dissenting shareholder a right to appraise the value of his shares before the decision of the adoption of dual-voting structure was passed by the company. The second possibility is to leave the dissenting shareholders to decide whether to adopt dual-voting structure or not.The fourth chapter analysis the possibility of the adoption of dual class equity in the Chinet market and the obstacles put out by Chinese Company law.