China Has Implemented A Stock Option System Of Legal Issues For Study

The separation of ownership and the power of control makes it necessary to establish some mechanism to connect the interests of the shareholder and the management. Stock option is such a system that can make the management to act as the shareholder in order to maximum their incomes. Because only the stock price rises can the management get compensation from the margin between the exercise price and the market price of the stock of the corporation. This article discusses the legal problems of establishing stock option system in our country. This article consists of four parts.The first part discusses the conception of stock option and the differences from other conceptions such as employee stock ownership plan. The characteristics and legal quality of stock option are also to be discussed in this part. Different writers have different viewpoints about the legal quality of stock option.The second part of this article focuses on the function of stock option system. Besides motivating the management stock option can improve the corporate governance in decreasing the agency cost and correct the short-sight action of the management. After analyzing the positive function the author points out like any other system stock option system also has some limitations. The interests the management obtained form the stock option certainly will reduce the profits of the corporation and reduce the interests the shareholder. With the total shares of the corporation growing for the sake of exercising of the management the rights of the shareholder will be influenced. Because the management's income is tightly related with the stock price, the management may commit some illegal action to pursue the rising of the stock price.The third part discusses the legal obstacles of establishing stock option system in our country. Compared with other countries it is impossible to set up stock option system in our country under the present legislation. The biggest obstacle is the lacking of shares toprovide for the purpose of exercising. According to international practice there are three ways to get stocks for the exercising: re-buying its own shares in the market, issuing new shares, leaving some shares while issuing; but according to the present legislation at home these ways are inaccessible. Besides the above-mentioned obstacle others like lacking of the regulations about the tax and accountant of stock option are also existed. In other countries the income from stock option can get tax preference avoiding the income to be influenced by the high tax rate. So it is very important to amend the present legislation to provide rooms for stock option system.The last part gives some suggestions to establishing stock option system in our country based on the related regulation of other countries and the practice of our country. The regulations include the followed aspects. First, some legal problems about vesting stock option include who has the right to vest stock option, the range of the employee who can obtained the stock, the amount the stock the corporation vests. Second, the legal problems in exercising include the exercising price, the adjusting of the exercising price, the forbidding transference of stock option, the postpone and ending of stock option etc. Finally the information disclosure of stock option is also to be discussed.