The Construction And Improvement Of The System Of Preferred Stocks In Venture Capital In China

In mature venture capital practice,preferred stocks have been widely favored by venture capitalists and entrepreneurs with their dividend priority,liquidation priority,and voting rights restrictions.Generally,preferred stocks have been recognized by the legislature.For venture capitalists,the arrangement of preferred stocks can effectively reduce the the adverse selection and moral hazards caused by the serious information asymmetry between venture capitalists and entrepreneurs.Therefore,investors can not only perform business well to obtain relatively stable investment income,they can also get compensation before common stock when the company fails to meet the expected goals or falls into an operating crisis.For entrepreneurs who are financing parties,using preferred stocks as a financing tool is also an excellent choice.Through the arrangement of preferred stocks,they can solve the difficulty of obtaining financing by traditional means such as bank loans in the early stage of entrepreneurship.Meanwhile,the design of restrictions on voting rights in preferred stocks can enable the founders to maintain without losing control of the enterprise.Since the mid-1980 s,China's venture capital practice has made many advances and breakthroughs after more than 30 years of exploration and development.However,the preferred stock system that is compatible with venture capital and widely used in venture capital practice in a mature market economy system has never been confirmed at the legal level.Although the pilot of preferred stock was officially launched at the end of 2013 in our country,the scope of the pilot limited the issuer of preferred stock to limited companies,and venture capital investment-startup companies that usually exist in the form of limited liability companies were excluded outside.So,startup companies are still in a state of "unable to rely on" through preferred stock financing.With the continuous advancement of preferred stock pilots,whether the scope of application of preferred stocks should be extended to limited liability companies,and how to construct a preferred stock system that applies not only to listed and unlisted public companies,but also to such limited liability companies,has become an urgent problem to be solved.On the basis of analyzing the necessity of introducing preferred stocks in venture capital,this paper sorts out the relevant legislative practice in China and the difficulties and reasons for the application of venture capital in China.Combining the preferred stocks of countries outside the territory and their application experience in the field of venture capital,this paper tries to put forward some corresponding suggestions for the improvement of the system of preferred stocks in venture capital in China.This article is mainly divided into four parts:The first part is preferred stock and the necessity of introducing it into venture capital.On the basis of combing the basic theories related to preferred stocks and risks,this part discusses the necessity of introducing preferential stock system in China's venture capital in terms of investment and financing needs,risk investment norms,and international circulation of venture capital.The second part is the predicament and reasons for the application of preferred stock financing in China's venture capital.This part analyzes the plight of China's venture capital application of preferred stock financing on the basis of reviewing the evolution of China's preferred stock legislation,and from three aspects analyze the reasons for the existence of the dilemma: “commercial legislation started late”,“insufficient understanding of preferred stock”,“insufficient understanding of the unique value of limited liability companies”,“The supporting system is not perfect”.The third part is comparative observation: experience and inspiration from outside the territory.In order to provide corresponding experience and enlightenment for the improvement of China's preferred stock system,this part combines the characteristics,advantages and disadvantages of the two different preferred stock legislative models outside the territory.In addition,to explore the inclusion and extension of preferred stocks from the perspective of venture capital,this paper focuses on analyzing the specific application of preferred stocks in the USA,which is the the origin of venture capital.The fourth part is the suggestions for the improvement of the system of preferred stocks in venture capital in China,in the areas of application scope,legislative rank and legislative model of preferred shares.In this part,this paper mainly talks about the design of rights of preferred stocks from the perspective of venture capital,the improvement of supporting talents and institutional systems,the exploration of the establishment of legal system consisting of law,administrative regulations,departmental regulations,and guiding cases.The multi-level preferred stock legal system has put forward preliminary proposals with a view to ending the current situation where the risk investment practice has been carried out by the legal margin because of the lack of venture capital preferred stock system.