Protection Of Minority Shareholders Under Dual-class Share Structures

All round the world,competition among major economies is intensifying,and America’s openness to dual-class share structures has led it to stay ahead of the game.In 2014,alibaba’s listing request was rejected by the Hong Kong stock exchange and transferred to the New York stock exchange,resulting in Hong Kong and Singapore reconsidering the necessity of institutional reform and accepting the listing application of dual-class share structure companies successively in 2018.At present,the domestic demand for dual-class share structure is gradually increasing,and the institutional reform of technology innovation edition will inevitably push China to improve legislation as soon as possible to fill the institutional gap reserved in the company law,and provide a sound legislative basis for the reform of shareholding structure allocation.Entrepreneurs often face a dilemma when considering whether to issue shares to raise funds for the long-term development of their enterprises: to exchange control for capital,or to give up efficient financing to maintain control.After all,investors do not have the same business philosophy as the founders.Retail investors are more inclined to pursue short-term stock value increase,and it is difficult to have enough motivation to invest time and energy in the management and supervision of the company for a long time.If this dilemma cannot be solved,these entrepreneurs would rather not issue shares to the public and raise money from other sources.n this case,the overall economic benefits of society will be reduced,and investors will lose many investment opportunities.One possible solution to such a dilemma would be to allow these companies to issue shares with different voting rights,to be more precise,the company will issue two types of shares: a-shares and b-shares.:A-shares are the traditional one-share-one-vote system,held by public investment shareholders and can be freely transferred in the market.As a privileged share,B shares enjoy a high voting power of more than one share and are held by the company’s founders,early partners and senior management.This differentiated way of equity allocation is known as dual-class equity structure.This way of raising funds by selling low-voting shares and maintaining company control by holding high-voting shares,which separates the cash flow right and voting right of shareholders,is an innovation and breakthrough on the traditional principle of one share one vote.From the appearance and development of dual class share structure,it has the superiority and realistic foundation that other share structures can’t match.Entrepreneurs want to make the most of this dual-class share structure,which hasmushroomed in the new era of technology companies,to meet financing needs without losing control.At the same time,the "heterogeneous" reality of shareholders gradually overthrows the "homogenization" hypothesis,and the concept of corporate autonomy with shareholder autonomy as the essence is no longer satisfied with the traditional one-share-one-power structure.The wave of hostile takeover again pushed the dual-class share structure to a climax,which was greatly respected at that time.However,no matter how much it conforms to the development concept of innovation and entrepreneurship in today’s era,its disadvantages cannot be ignored.Since shareholders holding privileged shares do not have to bear the risk of decisions corresponding to their voting rights,nor will they get the investment return equal to their voting rights,they have the incentive to seek private interests and make self-interested decisions detrimental to the company.Control of the market liquidity is weakened and privilege stock holders lack the threat from unwanted suitors,also don’t have to take the management of the failure of the corresponding responsibility,low power of the voting stock holders can only listen to the mercy,or reluctantly left,so the degree and the possibility of infringement of the right of minority shareholders interests is much higher than the same type of a vote.It is precisely because of the inherent advantages of dual class share structure and the mutual game of institutional risks that different countries and regions always maintain a prudent legislative attitude,and their acceptability is not the same in different historical periods,and the debate on this has never stopped.Lawmakers are troubled by concerns about how best to protect minority shareholders,who are "weak".In view of this,the author suggests to strictly limit the "access conditions" for companies to use dual-class share structure companies to go public,make good "governance arrangements",and protect minority shareholders by improving the "governance mechanism" such as the independent director system,information disclosure system and after-action litigation protection.The main contents of this paper are as follows:The first part is the basic principle of dual class share structure.Mainly from the dual class share structure of the theoretical basis,practical basis and extraterritorial system to explain.Among them,the dual-class share structure reflects the concept of corporate autonomy and the change from "homogenization" to "heterogeneity" of shareholders.The wave of takeover and anti-takeover and the background of innovation-driven development are all giving birth to new corporate governance methods.By comparing the "past lives and present lives" of the dual-class share structure in major developed jurisdictions in the world,the development history,legal system and survival status quo of the dual-class share structure in different jurisdictions are studied.Different countries have different attitudes towards legislation,so we should carefully analyze and put forward feasible plans applicableto China’s legislative arrangements,so as to provide reference for China’s localization development.The second part is the influence of dual class share structure on the interests of minority shareholders.The positive effect of dual class share structure is that it can alleviate the traditional agency problem.Satisfy the personalized investment preference of shareholders;Prompting managers to focus on long-term value.The negative effect of dual class share structure is that the basic rights of small and medium-sized share will be infringed.To reduce the effect of market of control right on corporate governance,but to block the supervisory function of hostile takeover.The third part of this paper is the analysis of damage reasons of minority shareholders under the dual class share structure.The controlling shareholder has the absolute control right of the company the small equity has to raise its opportunism tendency thus has brought the new agency cost.In addition,when the basic rights of minority shareholders are infringed and remedies are impossible,then at this time,it has to be said that minority shareholders are always in a weak position.The fourth part is the institutional design of dual class share structure.The first is the "access conditions",including the limited scope of application,stock dividends and the qualifications of the owner;Second,"governance arrangements",including equity transfer and voting mechanisms;Third,the "governance mechanism",the establishment of a sound independent director system and rights protection mechanism under the dual ownership structure of small and medium-sized shareholders protection system.