Research On System Of Class Stock In Chinese Company Law

Chinese Company Law separate companies into two categories that is Limited Liability Company and Incorporated Company. Due to the character of human compliance, shareholders of Limited Liability Company could arrange different content of shareholders’ rights through entering articles of association, therefore different shareholder may have different types of rights in the company. However, as for Incorporated Company, due to its character of publicity, it is strictly restricted by the laws. As the principle says “the shares of the same class shall have the same rights and benefits”, the rights of Incorporated Company’s shareholders in Chinses capital market are the same that is all the investors have same rights. The system of Class Stock nevertheless has been exist for a long history, and widely adopted by the countries which are in Common Law system or Continental legal system. Class Stock system divides company shares into different types according to different content of rights, meeting different needs of investors, and this system is the result of marketization of Company system. Companies therefore may widen its financing method and meanwhile keep the managing structure of the company steady.Specifically speaking of the function of Class Stock, it is an important tool used by enterprises in the free capital market to function in several aspects like raising capital, developing its fiscal structure and defensing Hostile Takeover. On the one hand, class stock can fulfil the requirement of investors to retrieve repayment, on the other hand, benefits from its flexibility, class stock may help investors take parts in management of the enterprise properly, which has remarkable advantages to solve the problem that foreign capital may takeover domestic enterprises after entering Chinese market. Therefore, it is also necessary to establish such system in China, who doesn’t experience too much long time in the development of capital market. As for investors, different investor’s expectation varies, single type of stock may suppress the zealous of investors and therefore the invest risk increase. Moreover, class stock is also an innovation in diverse financial invest tool, it provides investors with more possibilities of choosing proper investing methods, which may ease the speculation pressure in stock trading market objectively. As for company, the system may help them widen the financing method, especially for start-ups, the system is an efficient tool to concur difficulties in financing.However, since the commencement of Chinese capital market in 90’s last century, the system of class stock has never been discussed officially, and also been missing in laws, regulations and departmental rules or management regulations of listed company. All the practices are lack of support from laws, similar arrangements were halt by government. In the circumstance of globalization, enterprise laws are not only a domestic law, but also the one which should create the environment for enterprises to compete with others in international stage. Therefore, this discussion of class stock system have huge significance not only in theory but also in practice.In fact, there does exist cases of class stock practice. In history, several similar arrangements used to appear in the market, but due to the lack of legitimacy, no such a systematic system come into being eventually. In recent years, our government and security supervision department has gradually notice the importance of the multi-layer stock structure, and the relevant documents of preferred stock have been published by the State Council, which let the preferred stock as a kind of class stock become an attempt of class stock establishment in China. This article will research on whether it is reasonable and legality to establish the system of Class Stock in China from the perspective of Company Law theories, and it will make relevant advice and opinions compromising all the research results and empirical study results.In the meanwhile, viewing the design of class stock system in other countries from comparative law’s perspective, we may see different characters in continental law system and common law system, they have clear differences in the legitimate mode choice. Analyzing the content of class stock system of each country, class stock usually contains types of stock have voting rights, stock have rights to take part in distribution of residual property, stock of payback, stock of election, stock of transformation and combined stock, etc. Continental law system usually adopt legitimate mode in which laws will list all the types of class stock and companies may not create new type of stock out of the laws. While in common law system, the legitimate mode has more freedom that companies may authorize the board to issue different types of stock under the general regulations of the law. Taking the practice in China and the system in other countries, the author of this article has come up with some suggestions and advice towards the establishment of class stock system in China.Overall, to build a multi-layer capital market is the object of development of the country set by Chinese Communist Party, and the multi-layer mentioned here are not only about the market itself, but also the method of financing, the investors, the methods of offering and the trading system should be multiple. Taking into account of class stock system worldwide, the compromised mode is much more proper for the present develop degree of China and the supervision level of the government, and meanwhile make use of its advantages utmost. Now the Securities Laws of China is to be amended, which is the biggest change in these 20 years since the capital market was built in China, the author hopes the new Securities Laws and Company Laws may respond to the trend of market on the issue of class stock system.