Legal Protection For Non-controlling Shareholders In Dual-class Share Structure Of STAR Market

The biggest problem with Dual-Class Share Structure is the risk of victimisation of non-controlling shareholders due to the mismatch between ownership and control,and in practice,victimisation of non-controlling shareholders does occur.As this risk is unavoidable,the protection of non-controlling shareholders has always been an important factor influencing the effective operation of the Dual-Class Share Structure of the STAR Market.However,since the acceptance of Dual-Class Share Structure in2019,the rules on non-controlling shareholder protection on the STAR Market have remained largely unchanged,while the "rival" Second-board Market has improved noncontrolling shareholder protection in its rules for lifting the ban on Dual-Class Share Structure in June 2020.This paper therefore takes the current situation as a starting point to identify problems and make recommendations to improve the protection measures for non-controlling shareholders in the Dual-Class Share Structure of the STAR Market.Specifically,this paper has four parts.The first part is an argument for necessity.There are three reasons for improving the protection measures for non-controlling shareholders in Dual-Class Share Structure of STAR Market: firstly,in theory,Dual-Class Share Structure enhances the possibility of infringement by non-controlling shareholders,and in practice,infringements do occur;Secondly,the STAR Market has neither addressed the risk of localisation in accepting Dual-Class Share Structure nor its current shareholder protection measures are capable of dealing with infringement of non-controlling shareholders;thirdly,if STAR Market does not improve the relevant measures,it will not be able to achieve the same level of policy as Second-board Market,and its competitiveness may be weakened as a result.The second part of this paper is a review of the current situation and the issues identified.Firstly,the existing measures for the protection of non-controlling shareholders in STAR Market are divided into three stages: protection in advance,protection in the event,protection after the event.Secondly,the problems at each stage are summarised according to the results of the combing.The problems of protection in advance are mainly inadequate restrictions,which are manifested in the suitability restrictions on investors that can be easily circumvented,the overly broad restrictions on special voting subjects,the absence of fixed-term sunset provisions with a high probability of triggering and the weak information disclosure requirements for DualClass Share Structure.The deficiencies in protection in the event are mainly at the level of institutional regulation and corporate governance.Institutional regulation is more ex ante than ex post.Internal governance includes insufficient independence of the supervisory board,inadequate role of independent directors and ambiguity as to whether fiduciary duties of controllers should be required.Problems at protection after the event are the difficulty of initiating litigation,the difficulty of finding abuse of special voting rights in litigation and the lack of redress mechanisms.The third part is empirical.Firstly,the US where Dual-Class Share Structure has been used successfully,Singapore,which is also an emerging capital market,and Hong Kong Special Administrative Region of China,where the timing of unbundling is close to that of the STAR Market,are chosen for reference.Secondly,we discuss the level of regulation among the three,and discuss what should and should not be done in the process of improving the protection measures for non-controlling shareholders in the STAR Market in the context of our national situation.In terms of regulatory standards,the rules of the STAR Market should be stringent.The fourth part is to make recommendations for the problems.First,to address the problems in ex ante protection,STAR Market should impose strict restrictions on DualClass Share Structure,including restrictions on investors,restrictions on special voting subjects,increased options for the application of fixed-term sunset provisions and enhanced information disclosure requirements.Secondly,protection in the event should strengthen both sectoral regulation and improve corporate governance,bring into play the role of supervisors and independent directors and strengthen the requirements for controlling shareholders.Third,the protection after the event should ensure the maneuverability of litigation and establish expectations for judicial determination of special voting rights abuses.The exit and compensation mechanism should be improved in a timely manner at the ex post facto level of institution building.