On The Applicability Of Dual Class Share In China

The kernel part of the listed company is its share structure. Alibaba expected to be listed in Hong Kong Exchanges; however it was considered to be against the principle of same shares same right for its unique partnership system. Consequently Alibaba failed to be accepted by the SFC(Securities and Futures Commission) and went to the American market. Alibaba’s case in SFC stirred the argumentation whereof whether to grant the company the right to adopt its share structureaccording to its own financing requirement and its developing background by sticking to its“single share structure” or to adopt the American dual-class share structure.In America, the Pre-IPO companies can issue the common stock with different voting rights as long as they make the information disclosure in time legitimately. The dual- class share structure has the advantage of disregarding the share holders’ excessive demand of short term interests, which is beneficial to the long term, stable and healthy development. In China, however, the issues concerning dual- class share structure focus on the negative problems, such as breaking the principle of same shares same right, insider control enhancement, increasing the difficulty of the right protection of the small shareholders. The legislative deficiency in China nowadays impedes the IPO of these companies such as JD.com and Alibaba etc. Whereasthe domestic shareholders complain about the deficiency of potential and growth stock in A share market. In the above-mentioned circumstances, the Prime Minister Li Keqiang raised the issue of “encouraging the startups with special share structures to be listed in the domestic market”.This thesis aims to analyses 1) the American corporate governance mechanism deriving from their issuing stocks with different voting rights through the analysis and comparison of the share structures of JD.com, Alibaba, Facebook, and Google, 2) whether the pattern of share ownership structure which is held by domestic listed companies can well conducted in current circumstances, and the way to localization.This thesis consists of six parts, namely:Part 1, 1)introduces the stock holder’s right, the fundamental element of dual-class share structure,the meaning, types, and nature of shares with different voting rights, 2)analyses the legislation, the tendency of legislation, and the implementation of the shares with different voting rights in several countries in the world.Part 2, analyses the S-1 and F-1 forms of JD.com, Alibaba, Facebook, and Google, demonstrates these issues of dual-class share structure, and its applicable subjects, application conditions and methods, and relevantinterpretations.Part 3, 1)introduces the evolution of the dual-class share structure, introduces the course of change and development of the American dual-class share structure, 2) analyses the theoretical foundation of the dual-class share structure, the motivation and responsibility of the IPO companies especially the enterprising companies adopting dual-class share structure.Part 4, analyses the dual-class share structure’s negative impact to the company management, the enhancement of the insider control, the separation of voting rights and cash flow rights, the aggravation of the small share holders’ right protection, the malfunction of the supervisory mechanism in the hostile takeover.Part 5, analyses the legal obstacles and difficulties of company management generated by the introducing of the dual-class share structure, such as: the breaking of the principle of one share and one vote and the principle of same share and same right, less efficiency of shareholder right protection because of lack of class action, the immaturity of the independent director, weak board of supervisors, deficiency in the information disclosure system.Part 6, analyses the feasibility of adopting the dual-class share structure into the domestic share market, discusses the deficiency and the measures thereafter through the experiences of dual-class share structure conducted currently.