Research On The Sunset Rules Of Differential Voting Rights And Its Legislation

The dual-class structure solves the problem of the weakening of shareholders’ control over the company when the company conducts equity financing,and can maintain their control of the company.So dual-class structure has been widely welcomed by the founders of the company.In the early period of the company,maintaining the stability of the founder’s control over the company is beneficial to the formation of company’s culture and valuation.However,in the long run,due to the mismatch between voting rights and residual claims under the dual-class structure,such arrangements may increase Agency costs between founders and other investors.In order to fundamentally resolve the risks caused by the mismatch between voting rights and residual claims,in practice,investors began to use contract instruments to set specific conversion conditions for the conversion of superior-voting shares to ordinary shares.On the basis of market experience,securities regulatory authorities and stock exchanges have also begun to adopt mandatory sunset provisions to restrict superior-voting rights.As a result,two differentiated approach of the enforcement of the sunset provisions has been introduced.The first one named "charter autonomy approach" is characterized by autonomy of private law,and the second one named "forced intervention approach" is characterized by compulsory intervention.Both the constitutional autonomy approach and the compulsory intervention approach have their own unique economic,social,and legal backgrounds,and they also have defects to varying degrees.For China,in order to give full play to the financing function of the two-tiered equity structure and realize the effective connection of the sunset provisions of superior-voting with China’s capital market,it is necessary not only to draw on existing experience outside the region,but also to base it on our national conditions.In the context of the statutory status of class shares in China,as a part of the dual-class structure,the sunset provisions of superior-voting rights should also follow the statutory principles and be reflected in company law.But at the same time,reducing interference in corporate law and realizing the transition from a regulated company law to an autonomous company law is also a trend in China’s corporate legislation.Therefore,for the legislative choice of the sunset provisions for superior-voting rights,China should not adopt extreme forced sunsets or allow companies to self-government.Instead,we should choose a semi-mandatory sunset mode.Under this semi-mandatory sunset mode,the Company Law only stipulates in principle the need for the setting of sunset clauses,the requirements of publicity,and the procedures.Except for a small number of mandatory regulatory requirements,the company should be given sufficient autonomy to achieve the organic combination of compulsory and autonomous.