Research On The Rules And Application Of Dual Equity System In China

The dual equity system is both old and new.On the one hand,the system has been used in the United States for many years.It has mature supporting systems and relief measures,and provides rich theoretical basis and practical materials for the system construction of various countries and regions.On the other hand,the regulatory caliber has been gradually released,and the system has once again attracted the attention and discussion of people from all walks of life.This kind of discussion reached its peak when China's science and technology board pilot opened the restrictions on dual equity.The dual equity system has its own unique advantages.The founder can maintain control over the company while obtaining sufficient funds,focusing on the long-term development of the company,effectively avoiding ordinary shareholders,especially financial shareholders,paying attention to income that may result short-sighted behavior.So,the system herein has an important effect on the development of the enterprise.However,this is exactly where it has been criticized.Multi-voting shareholders use their control over the company to transfer benefits,and it is not uncommon for them to infringe on the interests of the company and minority shareholders.At the same time,the absolute control of enterprises also brings great difficulties to the supervision of the company operation and the protection or minority shareholders' rights.It is these shortcomings that continue to be practiced in practice.Different countries have different attitudes toward dual equity.There are prohibitions and approvals.Almost every country(region)has experienced the repetition of both the approval and the prohibition.Through the study of the different attitudes and historical iterations of countries(regions)on the dual equity system,it can be found that as long as the securities market is developed,the dual equity system would be successfully implemented is actually a false proposition.The successful practice of the dual equity system relies on the maturity of the securities market,the regulator's attitude and regulatory power,necessary restrictions and remedies.The key point of implementing the dual-equity system is not to prove its rationality and superiority in theory,but how to proceed from the national conditions,regulate the system according to local conditions,to seek balance between maintaining the control of different voting rights holder and effective maintenance of the interests of ordinary shareholders.With a large number of high-tech innovative enterprises in China going to the US,Hong Kong and Singapore have gradually liberalized the restrictions on the dual equity system.In March 2019,China introduced the corresponding rules to launch the science and technology board,allowing high-tech innovative enterprises to go public,and the rules for different voting rights are regulated in one section.Science and Technology Board allows qualified companies to use various voting rights structure to go public.For the purpose of regulating and maintaining market order and protecting the interests of the company and minority shareholders,Science and Technology Board has restricted the voting rights structure from various aspects,including: 1.Additional requirements for adoption of dual-equity structure,such as only before the IPO,the specific industry and market capitalization of the company,and the qualifications and interests condition of holders of multiple voting rights;2.The restriction on the multiple voting shares themselves,that is,the number of multiple voting rights per share should be the same,the maximum can only be ten times of the voting rights of ordinary shares,the restrictions on the transfer of shares with multiple voting rights,and the conversion of shares from different voting rights to ordinary shares;3.For the protection of the interests of ordinary shareholders,such as the right to convene the EGM and the right to propose to the EGM,the special resolutions of the shareholders' meeting that must be voted with the same voting rights;4.Special regulation of information disclosure,requiring the company to disclose relevant information on different voting rights structures in the public release documents such as the company constitution and prospectus,and to improve the periodic disclosure obligations and special disclosure obligations for major events.The Science and Technology Board's restrictions on the structure of multiple voting rights,with reference to the practical experience of the United States and the newly established Listing Rules in Hong Kong,actively learn from the guiding significance of mature experience on the construction of China's institutions.At the same time,it also fully considers the market characteristics of China's current “emerging and transformation”,which is different from the US liberal attitude.It emphasizes specific numerical and proportional requirements in various regulations,and these restrictions are also the most common institutional arrangements.In general,the science and technology board has a strong practical significance for the different voting rights system,and will play a huge role in the development of China's high-tech innovative enterprises and capital markets.Everything has two sides,and the Science and Technology Board has both a reasonable side and a point for further study.First and foremost is the conflict between the listing rules of the Science and Technology board and the current upper-level law and supporting documents in China,and the conflicts with China's current minority shareholders' protection system.Secondly,the termination clauses of different voting rights are important clauses restricting the expansion of the holder's control and the protection of the interests of the minority shareholders.Some of the provisions in the current Science and Technology board are doubtful,and there are too few restrictions on termination matters.It is recommended to refer to mature experience and regulation and add some clauses to control the sustainability trend of the dual equity system.Thirdly,the information disclosure of the dual equity system has always been the top priority of the supervision of countries(regions).The information asymmetry between the multiple voting shareholders and the minority shareholders will further aggravate the former's interests against the latter.At present,enterprises in China have applied for listing from Science and Technology Board with different voting rights structure,but the form and content of information disclosure of their prospectus(declaration draft)are still defective.In order to establish a smooth communication channel between the two parties,the information disclosure obligations set by the Science and Technology Board need to be further refined.It must be acknowledged that any system has its own flaws.In the current regulatory power,when different voting rights cause damage to the interests of the company and ordinary shareholders,in addition to the administrative accountability of the regulatory authorities,the relief mechanism within the framework of the company law of China,which including shareholders direct litigation,shareholder derivative litigation,and joint litigation systems are difficult to directly protect the civil rights of small and medium shareholders.Therefore,it is necessary for China to learn from the mature litigation system of the United States,combined with the actual situation in China,and set up an ex-post relief system that can effectively and directly protect the rights of minority shareholders.The dual equity system directly impacts the “one share with one right” concept and the traditional corporate governance structure that are regarded as the standard by the company law.It is not the mainstream structure that most companies will adopt.It is in the middle state of excessive equity concentration and excessive equity dispersion.The scope cannot be compared with the “one share with one right” structure.The application of dual equity has never been able to be separated from the restrictions on the rights of multiple voting shareholders and the protection of minority shareholders' rights.The provisions of the dual ownership structure under the Science and Technology Board also need to focus on these two points.