Research On The Legal Issues Of Preferred Stock System In Venture Capital

Venture capital,also known as venture capital,refers to a high-risk and high-income investment form that raises funds by private placement and then invests the funds in small and medium-sized enterprises(mostly driven by scientific and technological innovation)in the form of equity.Preferred stock,as an innovative tool under the background of China's financial reform,is characterized by its priority over common stock in the surplus distribution and liquidation of the remaining property,and generally does not participate in the voting and decision-making at the shareholders' meeting of the company.In other words,it is an institutional arrangement to transfer part of the management right of the company to the shareholders of preferred stock in exchange for the priority of the distribution of these property rights in the surplus and residual property.Preferred stock has a strong flexibility,which adapts to the real needs of venture capital and promotes the development of venture capital actively and effectively.Because on the one hand,can lower the risk investor's investment risk,promote the development of risk investment,on the other hand to ensure the entrepreneurs to the enterprise the management control,encourage entrepreneurship to create value for the company,and the two sides also can choose different types of preferred stock to design more fit into each other's interests appeal way of cooperation,full respect for autonomy.Preferred stock has an irreplaceable position in the field of investment and financing,and has a huge market demand,which can effectively boost the development of the economy.However,China's venture capital started late,and the legal provisions on preferred stock are not perfect,which increases the instability of the application of preferred stock in venture capital.At present our country risk investment in preferred stock applicable legal problems mainly has: first,the preferred stock in the lack of law,related to the risk investment system of preferred stock scattered distribution in administrative regulations and department rules,legal status is low,the company law of preferred stock have no specific provisions,makes the preferred shares are not fully understanding and proper legal status.Second,the specific rules on preferred stock are not flexible enough,among which the relevant regulations on the voting rights of preferred stock and the issuance regulations on preferred stock need to be optimized.Third,the exit mechanism of preferred stock shareholders is not perfect,and the right protection mechanism of preferred stock shareholders should be improved.The author analyzes the provisions of foreign countries on relevant issues in order to realize the reference role for our country.It is found that the American standard commercial corporation law and Delaware general corporation law have greatly endowed liberalism in the relevant system of preferred stock.In addition,the "venture capital model contract" stipulates that investors and financiers can agree on a series of specific rights such as redemption right,conversion right and joint sale right in the venture capital contract,so that investors can convert the preferred shares when the business condition of the target enterprise deteriorates,so as to realize the exit or control of the target company.As for the transplant of preferred stock system applicable to venture capital in common law in China,the author puts forward the following Suggestions based on foreign legislation and practice: first,improve relevant provisions of company law and bring preferred stock system into the scope of legal norms.Second,optimize the voting rights and issuing regulations of preferred stock to improve the flexibility of the application of preferred stock and regulate the development of preferred stock system.Third,improve the right protection mechanism for preferred shareholders in such exit channels as preferred stock redemption,preferred stock conversion and preferred stock objection share buyback.This paper is divided into four parts:The first part starts with the basic theory of venture capital and preferred stock,combines the characteristics of venture capital and preferred stock,and systematically expounds the functional value of the close combination of venture capital and preferred stock.The second part reviews the legislation of preferred stock system in China,points out the lack of basic legal guarantee for the development of preferred stock system,and points out the legal problems existing in the application of preferred stock in venture capital.The third part through the comparison of domestic and foreign preferred stock system related provisions,summarizes the shortcomings of China's preferred stock related provisions,on the issue of preferred stock rules too strict,preferred shareholders exit mechanism is not perfect and other issues to carry out a specific analysis.The fourth part puts forward some Suggestions on the improvement of preferred stock system in venture capital in China,including perfecting the relevant legislation of preferred stock in China,optimizing the relevant rules of preferred stock votingMaster's paper of shanghai normal university Abstract rights,relaxing the regulations of preferred stock issuance and perfecting the exit mechanism of preferred stock shareholders in China.