Study On "Sunset Clauses" In Dual-Class Share Structure

Contract autonomy has been applied in various fields.The dual-class share structure is essentially a contract between public investors and the founding team to transfer part of the voting rights.The dual-class share structure is beneficial to the founding team to maintain corporate control while raising capital,make full use of the idiosyncratic visions of the founding team.The unique separation of voting rights and cash flow rights of dual-class share structure can also resist the hostile takeover of "barbarians",but it also has some drawbacks.The special voting rights granted to the founding team lead to serious agency cost risks and the failure of internal and external supervision mechanism.At present.no unified opinion has been reached on the impact of dual-class share structure on corporate value.In the absence of a clear conclusion,legislation should maintain a neutral attitude and accept the dual-class share structure and the system should be better designed,and sunset provisions play an important role in this process.The special voting shares will be transformed into ordinary shares or the dual-class share structure will be terminated in the event of circumstances specified by law or articles of incorporation.Although the sunset clauses of dual-class share structure started late in China and there are numerous norms for reference,there are still many drawbacks.First of all,the types of sunset clauses are mandated in the exchange listing rules.Although it is in line with the current situation of investors in our capital market,but it limits the company to choose the optimal sunset clauses on their own and may encourage corporate inertia.Secondly,the existing content of sunset clauses are rough.For the transfer sunsets,the transferee is not distinguished,and for the dilution sunsets,the passive dilution caused by the expansion of financing is not considered,the special voting shares are all converted.The existing types of sunset clauses are mostly dependent on the active behavior or physical condition of special voting holders.It is difficult to solve the situation that the dual-class share structure may have reduced efficiency and disappeared dividends over time.Moreover,the special voting holders has a dual identity,being both a director and shareholder of the company,when he acts as a shareholder,the fiduciary duty of director cannot regulate him.Finally,due to the lack of supporting facilities for sunset clauses,when special voting holders refuse or delay the conversion of special voting shares,it is difficult for sunset provisions to be successfully implemented.In view of the above deficiencies,after studying the listing rules of stock exchanges in the United States,Singapore and Chinese Hong Kong,as well as typical company articles of association,this paper proposes to adopt the default application of sunset clauses to give listed companies certain autonomy space,and it can also disclose more information to outside;to provide exemption for transfer sunsets and the distinction between active dilution and passive dilution;to provide time-based sunsets and fiduciary sunsets for listed companies to choose on demand;punish improper acts of special voting holders through both administrative and civil channels of securities misrepresentation,give full play to the role of China Securities Investor Services Center,and introduce sunset compensation system to promote the smooth implementation of sunset clauses.