Research On The Legal Regulation Of Differentiated Voting Rights

Differentiated voting rights,as a voting right arrangement that breaks through the principle of equity equality,is an important way for company founders to strengthen their dominant position of control.Differentiated voting rights is not a concrete type of voting rights.It refers to all forms of voting that are different from the practice of same shares with same rights and one share with one right.The legitimacy basis of differentiated voting rights originates from the theory of shareholder heterogeneity.The hypothesis of shareholder homogeneity is regarded as the standard of traditional company theory.However,modern corporate theory that satisfies the diversified needs of investors shows that the hypothesis of shareholder homogeneity is on the decline,and the reality of shareholder heterogeneity is gradually recognized.Differences in investment preferences and in cognition are typical manifestations of shareholder heterogeneity.The context of decentralized ownership structure and founder’s human capital value further promote the generation of differentiated voting rights.Differentiated voting rights can satisfy the founder’s need to control the discourse regarding the company’s future development and pursuit,and eliminate the risk of excessive shortsightedness and information asymmetry in the company’s development process,especially in the initial stage of public shareholders.Differentiated voting rights originated in the United States and then spread to other countries and regions.To meet the needs of the development of technologically innovative companies and to enhance the competitiveness of the capital market,our country made clear provisions for differentiated voting rights for the first time on March 1,2019.The selection layer and the Chi Next layer will immediately follow the implementation of differentiated voting rights arrangements.The newly established Beijing Stock Exchange on September 3,2021 will also adopt differentiated voting rights arrangements after shifting the selection layer of the NEEQ.Company’s diversified financing needs will be further opened up,and the number of companies adopting differentiated voting rights arrangements will also show a continuous growth trend in the future.Theoretical research shows that when differentiated voting rights structure is applied,with the passage of time,the cost of management agency and controlling agency of the company will gradually increase,and the functions of internal and external supervision mechanisms will become more and more hollow,coupled with the strengthened motivation of special voting rights shareholders to maintain control rights and to suppress non-special voting rights shareholders,making the conflict of interest between special voting rights shareholders and non-special voting rights shareholders the focus of corporate governance.How to shape the control rights restriction mechanism of differentiated voting rights arrangements is really the key.Special voting rights shareholders usually have the dual identities of owners of controlling interest and that of company managers.How to configure the rights and obligations between the company’s internal members and various organizations and to optimize the relationship between shareholders with different voting rights will become the key for legal regulations of differentiated voting rights.The process of localization of differentiated voting rights in our country is not simply to adopt and apply.It is not only necessary to pay attention to the challenges brought about by differentiated voting rights to corporate governance,but also to consider the theoretical basis,contextual roots and value reconciliation of differentiated voting rights so as to define its spatial scope and applicable boundaries.Differentiated voting rights has the goal of optimizing corporate governance rules,regardless of its main designer being country laws,the Exchange or articles of incorporation.The choice of legislative model,the clarity of basic concepts and the deployment of specific rules will become the response to the legal regulation of differentiated voting rights in the new round of company law reform.This article aims to study the differentiated voting rights that is widely used in practice but still has room for theoretical extensions in legal regulation.Based on existing research results,combined with my country’s current legal environment and practical needs,it tries to clarify the theoretical mechanism of differentiated voting rights,with the aim of exploring the proper way for its legal regulation.At the same time,it is also hoped that this article’s response to the use of differentiated voting rights in state-owned companies will be beneficial to the three-year action plan for state-owned enterprise reform.They are as follows:The first part is mainly Introduce the theoretical basis of differentiated voting rights.Differentiated voting rights can be approached from broad and narrow senses.In a broad sense,it encompass all types of voting rights that are inconsistent with the practice of same share with same rights and one share with one rights.The narrowly defined differentiated voting rights only refers to share types that have non-equal proportional allocation in voting rights and income rights in shares.The broadly differentiated voting rights include agreed differentiated voting rights and statutory differentiated voting rights,while the narrowly defined differentiated voting rights only revolve around statutory differentiated voting rights.Clarifying the respective characteristics of agreed differentiated voting rights and statutory differentiated voting rights facilitates an in-depth understanding of differentiated voting rights from a broad perspective.This paper takes statutory differentiated voting rights as the starting point for the legal regulations of differentiated voting rights on the following grounds: on the one hand,the cost of information disclosure of agreed differentiated voting rights is high,the problem of agency costs is difficult to observe,and it is also difficult to apply standard rules.On the other hand,statutory differentiated voting rights will bring stronger impact on corporate governance system,which is necessary for legal regulation.Therefore,this article uses statutory differentiated voting rights as the main research object to limit.These following factors: the promoting of the shareholder heterogeneity theory,the contextual rooting of the decentralized ownership structure,and the outstanding manifestation of the founder’s human capital value.Combining the rationality of the return of differentiated voting rights and the adherence to the rationality of the theory can further demonstrate the functional manifestations of the private and political attributes of differentiated voting rights.The second part mainly analyzes the application of differentiated voting rights and the balance of interests.The application of differentiated voting rights will shake the principle of shareholder democracy,deviate from the principle of equity equality,intensify the dual separation of company ownership and control,and impact the governance structure of "decentralization-restriction".The questioning of the application of differentiated voting rights will specifically leads to the increase of company agency costs,the hollowing out of the functions of internal and external supervision mechanisms,the increased motivation of special voting shareholders to consolidate their control rights,and the increased suppression of non-special voting shareholders.In view of the dual identity is mainly manifested in the relationship between special voting shareholders and non-special voting shareholders,and between management personnel and non-management personnel.Because differentiated voting rights means re-allocation of voting rights among shareholders,the contradiction between shareholders with special voting rights and shareholders with non-special voting rights is particularly prominent.Using the theory of interest measurement as an analytical tool to identify,weigh and reconcile the parties involved in the differentiated voting rights is the proper way of the legislative process,for the process of corporate governance is dynamic rather than static.Differentiated voting rights will be checked and balanced by the control restriction mechanism under the interest measurement theory.The construction of a control rights restriction mechanism that is developed around the goal of balancing the interests of special voting shareholders and non-special voting shareholders will be the essence of the legal regulation of differentiated voting rights.The third part is based on the experience and reference of the evolution of differentiated voting rights outside the territory and the regulation.Liberalism and regulatoryism have been haunting the evolution of differentiated voting rights.The repeated battle between the two concepts is the main reason for the fluctuating evolution of differentiated voting rights.The United States is the country where the most developed securities market resides,and where the differentiated voting rights originated from,thus,to sort out the evolution process of differentiated voting rights in the United States will help us recognize its tortuous evolution.The change from prohibition to permission in Singapore’s attitude towards differentiated voting rights shows the influence of demand on the induced changes in the system.Germany’s increasingly harsh attitude towards differentiated voting rights is a true reflection of the difficult reconciliation of interests between shareholders with special voting rights and shareholders with non-special voting rights.The legal regulation of differentiated voting rights in various countries(regions)around the world presents three modes: leading by national legislation,Exchange or company charter.As the saying goes,"the reason of the law lies outside the law",so the formation of various legal regulation models of differentiated voting rights is closely related to cultural traditions,regulatory concepts,and the characteristics of jurisdictions in different countries(regions).But regardless of the different models,the legal regulation of differentiated voting rights will end up in the optimization of the corporate governance system.Access rules,operating rules,and supporting rules constitute the core of the legal regulation of differentiated voting rights.In the process of transplanting an exogenous system,the local characteristics of the receiving country must be taken into consideration.On the basis of clarifying the differences between our country’s securities market and mature foreign securities markets,it is appropriate for the construction of the control restriction mechanism to be carried out in a gradual way.The fourth part mainly examines the legislative changes and localization process of differentiated voting rights in my country.Our country’s position on differentiated voting rights at the legislative level changes from being relatively vague to a gradual recognition.The direct reason for this change is to meet the needs of the development of technologically innovative companies and to enhance the competitiveness of the country’s securities market.The earliest companies in our country adopting differentiated voting rights arrangements were all listed overseas.Learning form the mature experience of the legal regulation of differentiated voting rights abroad,our country’s "Science and Technology Innovation Board Stock Listing Rules" formally accepted differentiated voting rights,thereby promoting the systematic shaping of the legal regulation of voting rights and the enhancement of the competitiveness of our country’s securities market.The Sci-tech Innovation Board serves as the “experimental field” for the initial trial of differentiated voting rights.Up to March 27,2022,15 companies have clearly adopted differentiated voting rights arrangements in their "Prospectus" for listing.An practice inspection can sort out the similarities and differences in the specific settings characteristics of the differentiated voting rights rules in practice can be summarized.The current legal regulation of differentiated voting rights in our country is mainly based on departmental regulations of the China Securities Regulatory Commission and industry regulations issued by various Exchanges.To adjust the top-level legal system of differentiated voting rights based on the deficiencies in the current legal regulations is an appropriate choice.The fifth part is a design of our country’s legal regulation on the development of specific rules.As regards the choice of legislative models,a model led by national legislation should be adopted.In terms of clarification of basic concepts,firstly,the boundary between the autonomy of the constitution and the regulation of public power should be defined,so as to determine the allocation and distribution of specific rules in the legal regulation of differentiated voting rights.Secondly,the cognition of the free will of shareholders is the logical starting point for reshaping the principle of shareholder democracy.Thirdly,a corporate governance model with controlling shareholders as the core should be constructed,and the actual problems of China’s corporate governance should be connected with the norms that should be set.Finally,the ideal of interest equality of company law should be adhered to.With the application of differentiated voting rights impacting the current corporate governance structure,thus necessary to focus on the effectiveness of the company’s control rights restriction mechanism to reflect the concept of interest balance in corporate law.The development of specific rules of the legal regulation of differentiated voting rights should be approached from the perspective of access rules,operating rules,and supporting rules of differentiated voting rights,so as to build a complete,well-received and rigorous corporate control restriction mechanism.The possible innovations of this paper lie in three points: First,a theoretical analysis of the contractual differentiated voting rights.The agreed-upon differentiated voting rights such as the agreement of acting in concert,the trust of voting rights,and the right to solicit entrusted voting rights,which are reached through negotiation and autonomy between individual parties,exist objectively.In a broad sense,the agreed-upon differentiated voting rights are also a type of enhanced control mechanism.Specifically,what is the difference between them and the statutory differentiated voting rights and why they should not be included in the adjustment of company law? There has been little discussion in the academic circles so far.This article attempts to explain the problem to a certain extent.Secondly,to further enrich the connotation of the principle of shareholder democracy.Shareholder democracy does not only refer to the voting rule of one person,one vote.Although the principle of shareholder democracy has been expressed in the form of one person,one vote and one share,one vote with the evolution of the company system,it does not mean that there are only one person,one vote and one share.appearance is presented.The appearance may be adjusted as the company’s economic development needs change,but the essence of the principle of shareholder democracy will not change.This article attempts to further enrich the connotation of the principle of shareholder democracy on the premise of exploring the essence of the principle of shareholder democracy.Finally,it discusses the issue of stateowned companies adopting differentiated voting rights arrangements.Most of the existing researches focus on the locking effect of the differentiated voting rights structure on control rights,which is conducive to the realization of the goal of deepening the reform of the ownership structure of state-owned companies,but lacks a deep understanding of the governance of state-owned companies.Based on the characteristics of the long agency chain of state-owned companies,this paper attempts to put forward a cautious and conservative view on the use of differentiated voting rights in state-owned companies.There are three main deficiencies in this paper: First,there are still some deficiencies in the refining precision and thinking depth of the problem.For example,in terms of the causes and characteristics of the extraterritorial legal regulation of differentiated voting rights,the term "jurisdictional representation" cannot directly and clearly indicate the content.Behind the ambiguity is the lack of precision and depth of thinking about the problem.Second,the analysis of the profit and loss ratio of the company’s adoption of differentiated voting rights arrangements is insufficient.Companies adopting differentiated voting rights arrangements will lead to higher agency costs,but insufficient quantitative analysis of applicable benefits makes it difficult to fully justify companies adopting differentiated voting rights arrangements.Finally,there is insufficient awareness of the regularity of differentiated voting rights.The practice of differentiated voting rights is constantly deepened,and all insights come from the regular cognition of differentiated voting rights.Deepening the regular understanding of differentiated voting rights is what still needs to be observed,summarized and analyzed in the future.