A Research On The Legal System On The Differential Voting Structures In The Listed Company

The differential voting structure,as a breakthrough of the traditional one-shareone-vote principle,has been controversial since its coming into being.In recent years,with the sci-tech innovation companies’ preference for it,the differential voting structure is attracting attentions from the academia and the public,and is gradually adopted in many countries and regions amongst the controversies.The main disputed point about the differential voting structure is that it leads to the interest imbalance between the inside shareholders who enjoy high-weight voting rights(ie the founders and their team)and other shareholders.Since the differential voting structure results in the separation of cash flow entitlements and cooperate control which have been attached to the share interests together,that is to say,it confers controls on the minority shareholders who invest less,and thus the shareholders who have obtained actual cooperate control by virtue of their high-weight voting rights may make decisions injurious to the major shareholders in capital,for example,the shareholders with highweight voting rights who have been elected as directors may unduly transfer company assets through expensive position-related consumption or approving high payments for themselves,the differential voting structure is likely to lead to the malfunction of the cooperate governance structure.“Same share with different rights” caused by the differential voting structure makes more complicated the internal conflicts of interests between different shareholders,the shareholders and the company,and the shareholders and the managers.How to balance these conflicts of interests,especially how to balance the conflicts of interests between the shareholders with special voting rights and other shareholders becomes the focus in disciplining the differential voting structure.The differential voting structure,as the core of the building and perfection of the legal system on differential voting structure,should be studied academically.With the advantages and disadvantages of the differential voting structure discerned,corresponding legal systems appropriate to China’s context should be built.The issues on whether the differential voting structure breaches the effective governance structure of the listed company and what is the legitimacy foundation of the differential voting structure are discussed in this dissertation.It also puts forward a vision for incorporating the differential voting structure into China’s current legal system,proposing the establishment of the investor-centered differential voting system so as to achieve the balance of interests among the shareholders of the listed companies.The value of the differential voting structure is that it protects the entrepreneurs’ cooperate control from being diluted in the process of financing.The differential voting structure confers the cooperate control to the founders and their entrepreneur teams,fixes their control over the company and produces the following positive influences:firstly,it eliminates the threats from the transferring of cooperate control,makes it possible for the management to focus on the long-term development of the company and to be free from the disturbance of the fluctuations of the company’s short-term market values,therefore is helpful to the company’s sustainable development.Secondly,it reduces the financing costs.With the differential voting structure,when the company encounters new opportunities for development,the founders and their teams would not have to give up equity financing or turn to the more costly debt financing due to the worries about the dilution of their controls.Thirdly,the maintaining of solid cooperate controls could give the founders and their teams the impetus to reassuringly devote their unique human capitals to the company without worrying about loosing everything upon being ostracized.By virtue of the solid controls,the founders and their teams may effectively recover the sunk costs they have previously invested to the company,prevent the successive controller’s free-ride activities,therefore they could be stimulated to make pre-investments to the company.This is especially fit for the development of sci-tech innovation companies.Finally,the differential voting structure is helpful for the optimal allocation of the voting rights.Since not all the shareholders equally cherish the voting rights they have,differential voting structure could help to concentrate the voting rights in the hands of the founders and theirs teams who value it.Besides,for the shareholders lacking of motives to vote,the costs caused by exercising their voting rights could be decreased.The values that the differential voting structure could not be replaced by other kind of systems.Through investigating the development of the systems(including legal norms and listed rules)on the differential voting rights in the extraterritorial areas,this dissertation finds that the differential voting structure is better accepted in the more developed and more active capital markets,and that relatively better regulating mechanisms and investor-protecting measures concerning the differential voting structure are established therein.Reasonable legal systems on the differential voting structure can raise the cost of abusing their controls by the shareholders with special voting rights,and provide a deterrence against the acts of embezzlement conducted by the shareholders with special voting rights in operating the companies.In the background of globalization,with the more and more intensive competition in the capital market,the development of the systems on the differential voting structure shows the tendency of convergence.Combing the systems on the differential voting structure in other countries and regions will provides helpful reference for us to improve our legislations on the differential voting structure.Now in China,the building of the systems on the differential voting structure is still at the early stage,and there are gaps between the current theories of company law and the practices of company governance.While taking the unique advantages of the differential voting structure,we should be alert to its inner defects,that is,the differential voting structure breaks the relative equilibrium between the shareholder’s Participatory rights and economic rights under the traditional one-share-one-vote structure,and thus makes tensive the relationship between controlling shareholders with special voting rights and the non-controlling shareholders.Since comparing with the developed countries,we still have a long way to go to develop the maturity of the capital market and the rationality of the investors,a supervisory system centered on the investors should be established.Strict compulsory information disclosure clause should be made to regulate the activities of the differential-voting-structure listed company,fiduciary duties on the shareholders with special voting rights should be stressed,listed companies with differential voting structures should be directed under the listed rules made by the security exchanges to provide withdrawal mechanisms for the investors in their prospectus and articles of association,and diversified ex post dispute resolution mechanisms should be established,so as to improve the supporting systems for the differential voting structure,and build a multi-layered supervisory system integrating the legal norms,the regulations made by the securities regulatory departments and the listed rules made by the securities exchanges.Thus,a balance between taking advantages of the differential voting structures and preventing its inner defective tendency to harm the interests of the non-controlling shareholders,as well as an equilibration of interests between the shareholders with special voting rights and other shareholders,could be managed.