Research On The Scope And Termination Of Special Voting Rights In Dual-class Share Structure

Dual-class share structure originated in the United States,and it has been more than a century of development from birth to prosperity to re-prosperity.It can be said that it has risen and developed in the dispute.Since the 21 st century,in order to attract high-quality science and technology innovation companies to be listed locally,extraterritorial capital market regulators and stock exchanges have been committed to creating a more relaxed policy and legal environment,allowing companies with dual-class share structure to be listed,such as Tokyo Stock Exchange,Hong Kong Stock Exchange,Singapore Exchange Limited and so on.In 2019,China’ s Science and Technology Innovation Board as a pilot has also opened the way to embrace dual-class share structure.Although the application of dual-class share structure in China’s science and technology innovation companies has become an indisputable fact,there are still some disputes and there is still room for discussion.The exercise scope and termination rules of special voting rights can be said to be a good strategy to balance the interests of shareholders with special voting rights and shareholders with ordinary voting rights,they are also the key to resolving the disputes over dual-class share structure,and they are also crucial for the successful introduction of the dual-class share structure system.This issue deserves further discussion,and with the promulgation of the “Listing Rules for Science and Technology Innovation Board” and the first case of U-Tech Technology Co.,Ltd.,which has a dual-class share structure,officially entered the stage of the Science and Technology Innovation Board,the discussion is more realistic at the moment.Therefore,this article intends to analyze the exercise scope and termination of special voting rights in dual-class share structure.This article aims to analyze the substance,rules of determination,exclusions of the exercise scope of special voting rights and the substance,rules of determination and cause of termination of special voting rights in the dual-class share structure.The purpose of this article is to promote the healthy development of dual-class share structure in China,enhance the competitiveness,inclusiveness and adaptability of China’s capital market,and enhance the competitiveness of domestic exchanges in attracting high-quality enterprises with dual-class share structure.The body of this article contains three chapters.Finally,in the form of “attachment”,a brief analysis of the exercise scope and termination provisions of the special voting right in “Listing Rules for Science and Technology Innovation Board”.The first chapter mainly discusses the crux of the controversy caused by dual-class share structure and its resolution,which is also the starting point of the thesis and theory of this article.Firstly,it briefly introduces the development course of the dual-class share structure twists and turns and the background of its rise in China,and points out that the dual-class share structure has arisen and developed continuously in the dispute.Then analyzes the crux of the controversy caused by dual-class share structure,that is,shareholders with special voting rights have deprived the voting rights of shareholders with ordinary voting rights to varying degrees.As a result,the two types of shareholders are in an unequal position,which may cause shareholders with special voting rights to abuse their voting rights privileges when the interests of the two types of shareholders conflict,infringing the interests of shareholders with ordinary voting rights.Secondly,the fundamental idea and resolution of controversy caused by dual-class share structure are discussed.Dual-class share structure has not only disadvantages that can’t be underestimated but also significant advantages.After analyzing the comparative advantages and disadvantages of dual-class share structure,it is proposed that special voting rights should be based on the balance of the interests of two types of shareholders,as a preliminary theoretical foundation to facilitate the subsequent development.Then,it is pointed out that the scope of the exercise of special voting rights and its termination rules are a good strategy for balancing the interests of two types of shareholders,which is the key to resolving disputes caused by dual-class share structure,which is also the main topic of this article.The second chapter mainly analyzes the substance of the scope of the exercise of special voting rights,determines the rules,and uses this as a guide to explore the exclusions of the scope of exercise of special voting rights that are suitable for China’s national conditions.Firstly,using the theory of transfer of rights to analyze the essence of the scope of the exercise of special voting rights,that is,the partial transfer of voting rights.Secondly,it discusses how to grasp the “degree” of partial transfer of voting rights.This article points out that the scope of exercise of special voting rights should be limited to the balance of interests of two types of shareholders,and the determination of the scope of exercise of special voting rights should follow the rules of necessary and reasonable.Finally,taking the essence of the scope of the exercise of special voting rights and the rules of determination as the theoretical guidance,specific analysis is made on the exclusions of the scope of exercise of special voting rights.On the one hand,except personnel appointment and removal matters with supervisory value,which mainly include the appointment or dismissal of independent directors,supervisors and auditors.On the other hand,except particularly significant decision-making matters,which mainly include amend the company’s articles of association,change the number of voting rights enjoyed by shares with special voting rights,the company’s merger,separation,dissolution,or change of company form.This article emphasizes that company mergers and acquisitions,company connected transaction,increase or decrease registered capital of the company,reviewe and approve the company’s profit distribution plan,and compensation for losses are not necessary and should not be included in the scope of one share,one right voting.The third chapter mainly analyzes the essence of the termination of special voting rights,determines the rules,and uses this as a guide to explore the specific reasons for the termination of special voting rights that are suitable for China’s national conditions.Firstly,the theory of transfer of rights was used to analyze the nature of the termination of special voting rights,that is,the conditional transfer of voting rights.Secondly,it discusses how to determine the “conditional” of the conditional transfer of voting rights.This article points out that the company’s value-added vision is a condition attached to the transfer of voting rights of shareholders with ordinary voting rights.And the special voting rights should be terminated when the conditions attached to the transfer of voting rights are no longer met.The rule for determining the termination of special voting rights should be that capacity is no longer eligible or the shares held are no longer eligible.Specifically,the shareholders with special voting rights no longer retain appropriate operational decision-making capabilities,or the shares held by shareholders with special voting rights don’t reached a certain percentage or more.Finally,taking the substance and the rules of determination of the termination of the special voting right as the theoretical guidance,the specific reasons for the termination of the special voting right,namely the sunset clause,are specifically analyzed.Specific reasons can be divided into two categories,namely the occurrence of specific events and the expiration of a defined period.As far as the causes of occurrence of specific events are concerned,it should mainly include “separation and death and incapacity”,“transfer the shares with special voting rights”,“dilution shares or divestment shares”,“changes in company control”.This article points out that the causes of the company’s persistently low performance and breach of fiduciary obligations can wait for relative maturity,The “Listing Rules for Science and Technology Innovation Board” draws up thick-line provisions and encourage dual-class share structure companies to formulate specific terms based on actual conditions.As far as the cause of expiration of a defined period is concerned,this article considers that in China,the theoretical basis for the introduction of the cause of expiration of a defined period for dual-class share structure companies is not sufficient,and it is not necessary to set it as a mandatory rule.However,dual-class share structure companies can set the cause of termination on its own.The attachment,it briefly analyzes the scope of the exercise of special voting rights and the termination of special voting rights related provisions in the “Listing Rules for Science and Technology Innovation Board”.There are a lot of good points,of course,there are some problems.Regarding the provisions on the scope of the exercise of special voting rights,this article highlights that it is a great regret that the “Listing Rules for Science and Technology Innovation Board” don’t mention the appointment or dismissal of supervisors.It is recommended that the selection of supervisors be included in the exclusion of the scope of the exercise of special voting rights.Regarding the cause of termination of special voting rights,this article emphasizes that it is wise to do not specify the cause of expiration of a defined period in the “Listing Rules for Science and Technology Innovation Board”.However,when amended,it is recommended to add a provision that the dual-class share structure companies can choose whether to apply the cause of expiration of a defined period.