The Protection Of Preferred Shareholders’ Rights

Preferred stock originated from enterprise financing,which has the dual nature of equity and creditor’s rights.It emphasizes that the holders enjoy the economic rights such as the priority of dividend,the priority of liquidation and so on at the cost of transferring the voting rights.The core of the preferred stock system is to balance the interests between the preferred stock and the common stock and prevent the opportunistic behavior of the common stock shareholders.The main manifestations of the damage to the rights and interests of preferred shareholders in the United States include the elimination of the right of priority dividend,the infringement of the right of priority liquidation and the restrictions on the exercise of the right of redemption.The United States provides protection for preferred stock investors in two ways:contract and company law,and establishes a set of practical experience and legal rules on the protection of preferred stock rights.In 2014,China promulgated and implemented the "preferred stock pilot management measures",the implementation effect is not satisfactory.The statistical results of the issuance of preferred shares and the right setting show that there are some problems in China’s preferred shares,such as small market scale,lack of vitality and rigid right content setting,which lead to the difficulty of withdrawal of preferred shareholders.At the same time,the rigid right setting in the articles of association makes the preferred shareholders lose effective prior protection.The reason is that the legislation logic of "paternalism" sets many barriers in the scope of issuers,conditions of public issuance,rights of preferred shares,conditions of qualified investors and so on,which makes the amount of preferred shares issued very small;in addition,the drafting convention of model articles of association makes the articles of association only a product of template,and the prior protection tools of preferred shareholders are almost invalid.In addition,the other rights protection systems stipulated in the pilot management measures for preferred shares are very vague,which do not effectively aim at the opportunistic behaviors that common shareholders may implement.In order to avoid triggering the protection system,common shareholders will aggravate the coarseness of the articles of association.In this regard,China should relax the legal control on the scope of issuers,conditions for public issuance and restrictions on the content of rights,create a mobile,free and loose investment environment;give full play to the autonomy function of the articles of association,stimulate the issuers and investors to fully negotiate,set up diversified rights and interests and record them in the articles of association in detail.While the preferred shareholders make full use of the contract for self-protection,China should continue to improve the dissenting shareholders’ right of repurchase request and category voting right,so as to provide legal compulsory protection for the results of full negotiation.Specifically,China should make clear that the preferred shareholders have the right of dissenting shareholders’ repurchase request,allow the holders of non-public preferred shares to exercise their rights,learn from the valuation methods and standards of the United States,and specifically regulate the scope of exercise of class voting rights.The first chapter briefly introduces the development history of American preferred stock and the legislative change history of China’s preferred stock.It points out that there are many problems in the protection of the rights and interests of preferred stock shareholders after the promulgation of the administrative measures for the pilot of preferred stock in China.It summarizes the research results of empirical data and the problems of the class voting rights and the right of repurchasing claims of dissenting shareholders in the administrative measures for the pilot of preferred stock This paper lays a logical foundation.The second chapter introduces the definition,nature,function and main rights of preferred stock system.Because of the duality of creditor’s rights and stock rights,preferred shares have special rights different from common shares or creditor’s rights,such as the priority of dividend,liquidation,repurchase and class voting rights.The preferred shareholders enjoy the priority of distribution at the cost of transferring the voting rights.Preferred shares are mainly used for corporate financing,capital adequacy of financial institutions and adjustment of corporate asset structure.This chapter lays the theoretical foundation for the later discussion.The third chapter first introduces the classification of the conflict of interest between the common shareholders and the preferred shareholders,which shows that the common shareholders have sufficient economic motivation to reduce or eliminate the priority rights,and sums up the main manifestations of the damage of the American preferred shareholders’ rights and interests from a large number of classic judgments,including the elimination of the priority dividend right,the violation of the priority liquidation right and the restrictions on the exercise of the redemption right.The fourth chapter starts with the empirical data,pointing out that the number of preferred shares issued in China is small and mainly used to supplement the capital adequacy ratio of banks,resulting in a very narrow market of preferred shares for corporate financing.In addition,all enterprises adopt the way of non-public issuance,the market liquidity is insufficient,and it is very difficult for preferred shareholders to withdraw from the company.Secondly,in terms of institutional protection,China has a very narrow market of preferred shares There are also defects.The provisions of dissenting shareholders’ right to repurchase claims and class voting rights are too abstract and vague,and the prevention of opportunistic behavior is not targeted.The second part of this chapter analyzes the causes of this problem,mainly legislative control is too strict,the function of the articles of association is not played and legislative loopholes.On the basis of the above four chapters,the fifth chapter puts forward suggestions for the protection of rights and interests in China.The first is to relax the legislative control and give full play to the function of contract relief,which can create a more relaxed and flowing market for the preferred stock market,and investors can provide effective ex ante protection for themselves through consultation.Secondly,the regulation of system protection should be more detailed and specific: the law should clearly stipulate the right of dissenting shareholders to repurchase;in the system design,we should take into account the special situation that preferred shareholders suffer from rights and interests damage,and comprehensively consider the commonly used standards in the financial industry when withdrawing from the appraisal,and comprehensively judge the price of preferred shares.In the pilot measures,Article 10(1)(3)(4)of the provisions of the trigger circumstances of voting rights of categories should be more clear,and reference can be made to the situations listed in the American Standard Company Law.