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The Study On The Dual-class Share Structure

Posted on:2017-07-22Degree:MasterType:Thesis
Country:ChinaCandidate:C Z MoFull Text:PDF
GTID:2336330488472669Subject:Economic Law
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As an effective way for listed companies' founding shareholders or other controlling shareholders to maintain controlling power when issuing stock to raise equity capital to finance some promising growth of their companies, the dual-class share structure emerged and then arouse continuous dispute in western countries. Recently many Chinese companies adopted the dual-class share structure and IPO in the U.S., stimulating the same dispute in Mainland China. This paper is written against such a background and tried to examine the viability of allowing dual-class share structure in Mainland China.Section 1 introduces the brief information about dual-class share structure. A dual-class share structure has different types of stock with different voting power. The most obvious characteristic of the dual-class share structure is the separation of the voting rights and the residual claim rights of the stock. In the U.S., there are several ways for listed companies to issue dual-class stock, like “dividend sweetener” plans, time phased voting plans, IPO, spinoff plans, stock dividend issuing plans, etc.Section 2 reviews the emerging and developing history of the dual-class share structure in the U.S. and Hong Kong of China. In the U.S., the dual-class share structure are accepted and applied in a large amount of listed companies. However, the Chinese Hong Kong government does not allow listed companies apply the dual-class share structure. There are several reasons to explain the different attitudes towards the dual-class share structure between the U.S. and Hong Kong of China, mainly including different professional level of investors, different protection methods of small shareholders, different litigation cultures, etc.Section 3 analyses the dual-class share structure rationale by assessing the general reasons why listed companies adopt a dual-class share structure. The corporate autonomy principle and the freedom of contract principle is the main reason why listed companies adopt the dual-class share structure. Additionally, the transformation of “homogeneity” hypothesis to “heterogeneity” reality may be the main objective reason why listed companies adopt this kind of structure.Section 4 focus on the defects of the dual-class share structure and the actual responses to such defects. In the listed companies adopting the dual-class share structure, the agency conflicts may be aggravated, the incompetent heir may pose serious obstacles to the founder's posterity plans, the incentive for change in times of difficulty may be lost, the firm value may be decreased, the effectiveness of the takeover mechanism may be lost, etc. In the late 1980 s to the early 2000 s, a large amount of listed companies with dual-class share structure unified their shares and went back to the “one share, one vote” structure. Despite those defects, there are many listed companies still adopting the dual-class share structure, mainly because the dual-class share structure seems not trigger many of the agency problems, the controlling shareholders and the small shareholders may come into being an “equilibrium” relationship, the value of the small shareholders' equity may be increased instead of being decreased, the value of the listed companies may be increased in some circumstance, etc.Section 5 examines the viability of allowing dual-class share structure in Mainland China. Recently many Chinese companies adopted the dual-class share structure and IPO in the U.S., which arises the dispute whether Mainland China should allow listed companies to adopt such structure. This paper argues that relative laws and regulations have to be modified if Mainland China allows listed companies to adopt the dual-class share structure in the future.
Keywords/Search Tags:One Share One Vote, Plural Voting Rights, Dual-Class Share Structure
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