Legal Regulations On Private Placement Of Listed Companies

Private placement is one of the most effective means for publicly listed corporations to replenish resources for their ventures,which also is the popular resort for organisations to resolve cash flow inadequacy,to expand equity growth and to expedite merge and acquisition.In practice,the utilisation of private placement often involves problematic issues such as potential transfer of benefits among major shareholders and,therefore,poor protection to small and medium investors,which merits theoretical explorations and,therefore,legal regulations.In relation to the research methodology,this dissertation will employ three distinct vehicles including the theoretical approach,the comparative approach,and the inductive analysis.With the first approach,namely,the theoretical study,the necessity and imperfections in the regulatory framework will be assessed,from the theoretical standpoint;consequently,the inevitable conclusion will be reached that,with private replacement,it is inherent impossible to prevent original shareholding ratio being diluted;and that the current legal framework is ill-equipped to provide solutions.With the second approach,namely the comparative study,the respective systems for public companies and the private counterpart to initiate new equities will be contrasted.As a result,the necessity of the pre-emptive right for existing shareholders,as a protection mechanism,will be articulated.With the third approach,viz.,the inductive analyses,the insufficiency in the private replacement procedures will be analysed and revealed,which will be the building blocks of the solution suggested by this work.This thesis is structured into four sections.The first section focuses on the background introduction,whereas the second section is centred on the prime definitions of relevant components in private placement.Amongst these two chapters,the market scale of the private replacement by organisations will first be elucidated;then,the common purposes by corporations to launch private placement will be discussed;consequently,the following issues will be tackled,namely,transfer of benefits among dominant shareholders,controversial pricing,and protection to the interests of relatively small equity holders.In addition,with the evaluation of the current regulatory regime,the legal nature as well as the traits of private placement will be extracted in this segment;hence,the strengths and weaknesses of it will be presented,especially in the light of “the securities law”,“Administrative Measures for the Issuance of Securities by Listed Companies”,“Detailed Rules for the Implementation of Non-public Offering of Listed Companies”.The third chapter will focus on the balance of interests between existing investors and new investors.With the comparative research approach,respective pros and cons in terms of expanding capital will be compared among publicly listed corporations and limited corporations;thus,in order to protect existing shareholders,the paramountcy of pre-emptive right will be accentuated,the feasibility of which will also be assessed.More importantly,the efficiency of this mechanism in reconcile conflicting interests among shareholders will also under scrutiny.The following section will,based on ongoing discussion above,proffer comprehensive remarks and,more importantly,suggestions,from the perspective of legislators.In relation to that,a reference to the US regime will be made,to justify the rationale behind the preclusion rule.Hence,suggestions on restraints on corporations and potential purchasers,i.e.the new shareholders,will then be presented.The first half of the suggestions is devoted to the prevention of transfer of interest among dominant shareholders,and the rest of that is related to protection of the core interests of small and medium size shareholders,which also provides insights on how to enhance the specifications on pre-emptive rights and hoe to inform potential shareholders.And the last section is the concluding part of this work.