The Design Of The Dual Class Structure Stock Framework Under The Chinese Legal System Context

With the continuous development and improvement of China stock market and listed companies,more and more companies are financing and raising capital through listing and issuing stocks.In 2014,Alibaba triggered huge discussions to maintain its control over the company's listing on the New York Stock Exchange.Not only did Alibaba,but also Chinese companies such as JD.com and Baidu.com all went to the US to go public,resulting in the loss of innovative companies' home-listed resources in China.Although the preferred stock is permitted in China,there are so many restrictions on its distribution scale and conditions,for example,the preferred stock can only be with no voting rights.Compared to the dual class structure,the preferred stock could not solve company's financing demands,provide the different choices of issuing stocks and meet the desire of the founders to maintain control over the company.In 2017,the non-voting shares issued by Snap;In 2018,The Hong Kong Exchanges and Clearing Limited announced the changes of listing rules that permit the weighted voting right companies list made the discussion of the dual class structure more intense.Chinese current laws pursue the principle of equality of equity and the “one share,one vote” and “the same shares with the same rights” as stipulated in Articles 103 and126 of the Company Law have become the basic principle of corporate governance that same kinds of shares have the same rights.However,both technology and Internet companies are facing the finance needs in the early stage of corporate development,and the current “one share,one vote” structure in China cannot solve the problems between equity dilution and the desire of the founders of maintaining control over the company after the company's listing.Dual class structure stock can better solve such problems.The dual class structure has certain advantages: for example,it is conducive to realize the company's long-term goals,instead of focusing on short-term interest such as stock price rises.It can also concentrate on controlling rights,improving decision-making efficiency,and resisting hostile takeovers.More importantly,it is of great significance to the reform of state-owned enterprises in our country.Also,there are huge practical needs in our country.Therefore,it is necessary to introduce a dual class structure share.It can be used as the supplementary provisions of “one share,one vote” in the company law.However,there are certain drawbacks of the dual class structure stock.The excessive concentration of control power in the hands of founders and seniorexecutives of the company can easily lead to problems such as abuse of voting rights by founders,thus harming the interests of small and medium-sized shareholders,such as insider trading,and easily increasing agency costs.When the United States and other countries allow companies to adopt the dual class structure for listing,there are many supporting measures to protect investor rights,such as mandatory information disclosure,class action,the SEC's administrative mediation system and the strict judicial context of the United States.Therefore,when introducing the dual class structure share into China,we should pay attention to reducing the risk of dual class structure.Rather than rigidly transplanting,it should be combined with Chinese specific national conditions,legal systems and judicial contexts.The provisions of Article 131 of the Company Law have reserved space for the introduction of the dual class structure.At the same time,the information disclosure system and the administrative mediation function of CSRC(China Securities Regulatory Commission)also the shareholder derivative litigation system stipulated in the company law have become the foundation and possibility of dual class structure's introduction.However,it still needs to engage in pre-prevention of strong information disclosure,and remedies for the infringement of rights and interests of small shareholders afterwards— to improve the shareholder derivative litigation system and appropriately strengthen the administrative mediation function of the CSRC,and other supporting measures to protect the interests of investors and reduce the risk of dual class structure to make it really effective.