Legal Analysis On Dual-class Share Structure In Listed Companies

Dual-Class Share Structure is called “AB Share System” as well. Its most significant feature is that different types of shares have different voting rights. In 2013, Alibaba failed to list on Hong Kong Stock Exchange, which triggered a new round of discussion on Dual-Class Share Structure. As a type of classified shares, such structure had not received much attention before 2013. Dual-Class Share Structure involves in the basic value of many legal principles in economic law, company law, civil law and economics of law. This thesis explains the feature of Dual-Class Share Structure, explores the differences and similarity of such structure and other legal systems, combines legal theory and practice, utilizes the methods of case study, comparative study and normative analysis, bases on the classic problem of the conflict and balance of rights, discusses the value of the structure, refers to the experience of other countries, and seeks implementation path of Dual-Class Share Structure in China.The research in this thesis chiefly comprises 4 parts as follows:Chapter I, Basic Structure of Dual-Class Share Structure This part compares Dual-Class Share Structure with preferred share system, limited partnership, and voting agreement and summaries the basic legal feature of the structure. Different countries have different attitudes towards Dual-Class Share Structure. As the development and evolution of the structure, non-typical Dual-Class Share Structures have emerged in practice.Chapter II, Theoretical Analysis on Dual-Class Share Structure This part analyses on Dual-Class Share Structure in accordance with China’s currently valid Company Law. The law does not prohibit limited liability companies from setting Dual-Class Share Structure. However, with respect to joint stock limited companies, there exists the controversy on whether Dual-Class Share Structure can be set when the law does not have explicit provisions. Moreover, this part examines and weighs the value of Dual-Class Share Structure with the legal theories as follows: the balance of justice, freedom and efficiency in economic law; the equal rule of stock rights in company law; the theory of consideration in civil law; the theory of transaction cost in economics of law. By reasonable system designing, the rights of different parties in Dual-Class Share Structure can be balanced.Chapter III, Practical Study of Dual-Class Share Structure This part analyses on the advantages and disadvantages of Dual-Class Share Structure in practice. The disadvantages of the structure are as follows: being harmful to the internal governance of companies, creating agent costs, restraining active investors, and influencing internal value of stocks. Having said that, Dual-Class Share Structure has made positive contribution to the continuing of enterprise culture and the prevention to hostile takeover, and is beneficial to the long-term development of the company. The unique advantage of such structure strengthens its necessity.Chapter IV, Suggestions for the Establishment of Dual-Class Share Structure in the Capital Market of China From the perspective of medium and small investors, founders, financial investors and government, they all have the requirement for Dual-Class Share Structure. Thus, this thesis suggests that Dual-Class Share Structure should be promoted and regulated by Chinese law. To prevent the unbalance of rights, fiduciary duty of the holders of multiple voting shares should be further provided, and the rights of multiple voting shares should be limited. Last but not least, being focused on information disclosure, the supporting systems of Dual-Class Share Structure should be established.