Research On The Legal Issues Of China's Preferred Stock Financing

The preferred share,which takes a portion of the stocks,has a most obvious character that the right of enterprise, s management and administration were released to gain the priority of share interest and the remaining property during liquidation than the ordinary shares .According to the classification criteria of the rights and obligations upon the preferred share,the preferred share mainly has four classifications: first , upon the share ' s interest is cumulative or not, we divided the preferred share as cumulative and non-cumulative preferred share. Second, we concern that whether the preferred share can convert to ordinary shares ,we classify convertible preferred share and non-convertible. Then the preferred share of participation and not participial share, which constrained by if the shareholder permitted participate the deal of sharing remaining interest after the preferred share dividend were distributed. Last but not lease, the redeemable shares and non-redeemable shares, which depends on the enterprise's right of re pursuit. The issue of which preferred share will initiate is generally governed by the articles of the company, which shows greater respect for the autonomy of the parties than ordinary ones.Moreover, because the preferred share dividend is fixed, and enjoys the priority of dividend and residual property distribution, although it has released the shareholder's right of participating in corporate governance and vote,and which risk is relatively small,and the income is between common shares and bonds. Therefore, investors in Steadiness could be attracted to invest in the preferred share. As a new financing tool introduce in China, preferred share can not only provide new channels for corporate financing, but also can solve the dilemma of SME financing, at the same time, the innovate of instrument is conducive to the construction of multilevel capital market in China. In this certain consideration of financing advantage and contributing of construction of our country' s multilevel capital market, our country began the pilot work of the preferred share, since the 3 years' pilot, the relevant documents such as The State Council's Guidance on conducting Pilot Projects of Preferred Shares and Pilot Management Approach to Preferred Stock were published by the state one after another.Since our nation started the pilot of preferred share, the issuance of preferred share is not quite energetic,which is related to the restriction of the law of China. At present,the legal problems of preferred share financing in China mainly include such as the lack of legal regulation of preferred share, which is difficult to match the needs of practice ; the scope of issuers is too narrow; the scale of issuance limited relatively large; the liquidation priority of remaining property, and the repurchase right of preferred share has conflicts with the existing company law; the issuance of convertible preferred share is not quite perfect. The emergence of these problems is related to the legislative attitude and lack of legislative experience of the preferred share.Contrast with our nation' s practice of preferred share , the legal provisions of the priority of the western countries have been mature, for example, the statute of preferred share of the Anglo-American law system is the “ legislative model",with fully respect for the autonomy of the articles of company. And the Civil law countries take the "code legislation”model, puts the issuance, transaction, rights& obligations of the preferred share into details. In the legislation of preferred share, we should selectively absorb the legislative experience of this two legal systems,improve the legal norms of preferred share, full play to the subjective initiative of the preferred share, regulate the order of capital market, and provide the legal system basis for the healthy development of the preferred share. China should gradually release the restrictions on the issuance of preferred share and improve the legislative concept. Last but not least, China should strengthen the revision of the existing company law, improve the legislative level of preferred share, clarify the status of preferred share in the company law, modify the equity repurchase and liquidation provisions, clarify the provisions of convertible preferred share, solve the legal problems of the financing period, and make the most of the instrumental value of preferred share through the development of law.