Research On The Interest Balance Mechanism In The Process Of Listed Companies’ Going Private

Going Private Transaction is a kind of special mergers and acquisitions for the listed companies. The substantial difference between going private transaction and other mergers and acquisitions is that the goal of going private is to delist the target company and change it to a private company.Listing will offer a company the strong platform of financing and more opportunities to obtain the concern of the investors. However, risks go along with opportunities. A lot of issues, including without limitation, underestimate of the share’s value, lacking of share’s liquidation, high agency cost, possession of the interests of investment, supervisory cost and seeking or long-term development, etc. can motivate a listed company to go private.The measures for a listed company to go private are mainly shares purchase, mergers and acquisitions, reverse stock split and assets purchase. Some delisted companies choose to keep away from the capital market and operate their businesses in a relatively close and high-efficient way, while much more companies intend to seek for new opportunities and launch a new round of financing in a market that could win more high value for their shares.In the process of going private, the inherent conflicts between majority shareholders and minority shareholders, between shareholders and managements exist. The shortcomings in capital and corporate governance make the interest of minority shareholders are easy to be encroached on.Some other jurisdictions have already set mutual mature mechanism in order to protect the minority shareholders in the going private process.In the security legal system of the U.S., federal law and state law regulate the going private issues for the listed companies and have different focus. Federal law focuses on the information disclosure and documentation submitting requirements, representing by 13e-3 rule. State law focuses on the substantial scrutiny to the transaction, including without limitation, the performance of the fiduciary duties, the standards for scrutiny and the legality of the going private transaction.Currently, the regulations for the going private transaction in the PRC law are mainly the reporting requirements for the investors whose shareholding have reached 5% and conduct every 5% increase or decrease in such shareholdings thereafter and the mandatory tender offer of acquisition requirements. The protection to the minority shareholders under the PRC law still need to be improved compared to the relevant mechanism in some developed jurisdictions. As the business transaction are all aimed at efficiency and profits, a conscience law shall seek a balance between efficiency and fairness in order to maximize the whole benefits.As for the PRC law, we shall protect for minority shareholders in the going private transaction in the by ensuring their right to be informed, right of decision and right of relief. For the right to be informed aspect, representation and warranty clauses and strict liabilities of untruthful disclosure shall be introduced to ensure that the minority shareholders will be sufficiently informed. For the right of decision, setting the independent directors committees and entitling the minority shareholders the final right of decision will improve their positions. For the right of relief, entitling the shareholders the right of claiming a fair price, the introduction of reversion of burden of proof and securities class action will ensure that the minority shareholders will not suffer losses incurred by unreasonable prices.