Research On Preferred Stock Mechanism In China

Preferred stock is originated in the United Kingdom.It has a history of hundreds of years in western countries and has experienced the process of germination, prosperity, recession, recovery to improvement on the basis of adjusting step by step. But Preferred stock hasn’t been prescribed by law in China, for example Company law of the People’s Republic of China. It was enacted in 1993 and has been modified four times.however, preferred stock hasn’t been clearly defined in it. We just can see some rules about preferred stock in departmental rules.Due to various factors, preferred stock fails to get effective development and stagnation. Until March 21, 2014, China Securities Regulatory Commission formally announced the Preferred Stock pilot management approach.It is on the basis of State Council guidance on carrying out the pilot preferred shock and other laws and regulations. The appearance of it means the beginning of the preferred stock pilot and provides the preferred stock with a good opportunity to restart its development.Based on an overview of the basic theory of preferred stock,the article illustrates the necessity of development of preferred stock system in China and analyzes the problems existing in the development of preferred shares in China, analyzes comparative the preferred stock system of America and German. Through the above analysis, we hope we can find a better development path of preferred stock system.The article discusses the preferred stock system from the following several aspects:Firstly, the preferred stock system has been increasingly improved since it originated in the United Kingdom hundreds years ago. As a tool for the development of capital markets, the preferred stock system should be introduced to Chinese laws.Firstly, the overall size of China’s capital market is small and securities investment products isn’t rich.The development of preferred stock is in favor of promoting the building of multi-level capital market and conducive to economic development; Secondly, the value of direct financing of capital markets is low.The development of preferred stock can increase direct financing channels and enrich the pay means of corporate mergers and acquisitions; Again, investment channels in capital market is single. The development of preferred stock not only can abound the investment channels of investors, but also can protects the interests of minority shareholders.Secondly, the building of every system needs to use the advanced experience of other countries for reference on the basis of their own national condition. This paper examines the preferred stock system of the United States and German.As a representative of the common law system, the United States has adopted authorized legislation mode. As a representative of civil law countries, Germany takes formula legislative mode. Based on national conditions, Chinese legislative model should choose a statutory formula. At the same time, we need to reference the advanced experience of the United States. Because preferred stock the equity characteristics of preferred stock has a contractual property and internal structure of the preferred shares is complicated. So the setting of the preferred stock systems has a great autonomy space, which requires attention to handle the relation between legislative provisions and contractual agreements, to clarify where needs legislative provisions to be clearly defined,where needs articles of association to be clearly defined.Thirdly, the institutional development of preferred stock experiences the state of germination, development, stagnation to restart. We can find many problems in the development of preferred stock, such as market operation mechanism is not perfect, the laws do not give clear deficient regulations, corporate governance and the interests of balance exist inadequate places and so on.These problems constitute obstacles to the development of preferred stock. We not only need to modify Company law of the People’s Republic of China, but also we need to take supporting measures to remove obstacles to ensure their effective development, for example steadying supervisions of the government and industry.