Questioning The Publicization Of Dual-class Equity Structure Companies

In 2014,Alibaba's listing on the New York Stock Exchange(hereinafter referred to as the NYSE)triggered widespread concern in the academic and practical circles.Scholars praised Alibaba's “lakeside partner system” and practitioners in the field actively advocated the mainland.The stock exchange accepts dual-class equity structure companies.On the other hand,the public has been arguing that the Stock Exchange of Hong Kong(hereinafter referred to as the SEHK)has adhered to the principle of “one share,one vote” and missed Alibaba's quality listing resources.Then,the SEHK has also adhered to its own 27 years.The long-standing principle of "one share,one vote" is reflected.On April 30,2018,SEHK announced the new Main Board Listing Rules,announcing the acceptance of companies that have different arrangements for shareholders' rights.Xiaomi became the first technology listed on the SEHK with dual-class share structure.The type of enterprise has once again triggered a heated discussion among the public on the dual-class equity structure.The call for the introduction of dual-class share structure into the public companies is stronger.However,the reasons put forward by the scholars who agree with the listing of the dual-class share structure companies have not touched the essence of the public companies.They lack a complete understanding of the basic principles of the securities market,and fail to provide a justification basis for the publicization of the dual-class share structure companies.This article is divided into three parts: introduction,body and conclusion.The body part will be discussed in the following four aspects:The first part,first of all,clear the objects to be discussed in this article,and clarify its connotation.Then,the attitudes of the various jurisdictions to the publicization of the dual-class equity structure companies are divided into three types for analysis,namely: corporate law and security law are allowed,corporate law is allowed,but security law is prohibited,corporate law and security law are prohibited.The core concept of this paper is that non-listed companies(including closed companies and non-listed public companies)should be allowed to adopt a dual-class equity structure freely according to the contract,and listed companies should not adopt a dual-class equity structure.Therefore,it is a strong support for the core concept of this article to specify the provisions of the corporate law and security laws in various jurisdictions.The second part summarizes the current reasons for supporting the introduction of the dual-class equity structure into the public companies,including: addressing conflicts between maintaining control and financing needs,defending against hostile takeovers,increasing company value,and maintaining entrepreneurship.At the same time,it is pointed out that the reasons for supporting the introduction of the dual-class equity structure into the public companies are mostly related to judgment and prediction,and the testability is relatively poor.These reasons are open to question.In the third part,the reasons for the support of the second part are analyzed point by point,pointing out the loopholes in the theoretical basis of the introduction of the dual-class equity structure: First,the conflict between maintaining control and financing needs should not be regulated by law;secondly,defense the hostile takeovers will lead the company's management to evade the market supervision of the control market;once again,the relationship between the company's value and the equity structure is still inconclusive;finally,the lack of necessity and feasibility of maintaining the entrepreneurial spirit with a dual-class equity structure will lead to company value objectives hard to accomplish.Therefore,it is difficult to overcome the problems of embedding dual-class equity structure into public companies.The fourth part,in-depth analysis of the internal mechanism of the dual-class equity structure and the nature of the public company,draws the conclusion of this paper: the value orientation of the dual-class equity structure itself is difficult to integrate with public companies.First,in the dual-class equity structure,only the voting rights held by the founder are not circulated in the security market.Investors can only buy ordinary shares to become shareholders of companies.This form of inequality makes it difficult for investors to enter security market fairly.The rights of investors are deprived.Secondly,the plural voting shares and ordinary shares are essentially “one body but two sides”.The plural voting rights cannot be circulated in the market,and there is no mechanism for fair pricing.Ordinary shares are also difficult to price.In addition,the dual-class share structure leads to the unrestricted listing criteria of each company,and investors have to bear more risks when selecting investment objects,which constitutes a substantial obstacle for investors to enter the security market.Thirdly,the reason why the shares can be highly circulated in the market and freely traded is because of their uniformity and identity,and the multiple voting shares are lacking in this feature.At the same time,the control is firmly in the hands of the founders to solidify the company management,which leads to the destruction of the limited liability foundation of public companies,which in turn leads to the loss of the ability of dual-class equity structure companies to adapt to the security market.Finally,the introduction of dual-class equity structure by public companies essentially solves the conflict between the founder's maintenance control and the company's financing needs in a legally regulated way.However,the value orientation of the "pro-manager,anti-investor" contained in this system does not have legitimacy,which leads to the protection of investor interests after being placed under the control of the founder.Therefore,the conclusion of this article is that the listing of dual-class equity structure companies have own natural defects that are difficult to overcome and lacks the theoretical basis of legitimacy.