Study Of Balancing The Rights Between Preferred Shareholders And Common Shareholders In Way Of Law

Guiding Opinions of the State Council on the Pilot Launch of Preference Shares, which aimed at further deepening the shareholding reform of enterprises, providing issuers with flexible direct financing tools and optimizing the financial structure of enterprises, and which started the progress of the pilot launch of preferred shares, was issued on November 30 th,2013.The study of the regime regarding preferred shares in the new times means that we ought to move forward to a new stage, on which more details of the preferred shares could be considered based on the circumstances and practices of China, both in theoretical and practical way instead of only introducing the foreign laws in respect to preferred shares. One of the problems that ought to be solved now is how to balance the rights between the holders of preferred shares and common shares, and this article will make efforts to figure out the answer of that.Empirical analysis and comparative law are the two main methods applied in the article. With respect to empirical analysis, on the one hand, the article selects some featured cases in which there were conflicts of right and interests between preferred shareholders and common shareholders, on the other hand, all the preferred shares issuance cases in China so far are researched and the results are also included in the article. As to comparative law, the article introduces the legal system and theories concerning balancing the rights between preferred shareholders and common shareholders, from which we can learn a lot, and most of which are from America while not many are from Japan and Germany.The first chapter(Chapter I) discusses some fundamental matters about balancing the rights between preferred shareholders and common shareholders, including the content and structure of the rights of both, the complicated relationship between preferred shareholders and common shareholders and the rules that are to be used to balance the rights of the preferred shareholders and common shareholders. The three parts are discussed step by step and the later part is based on the former part.The second chapter(Chapter II) summarizes the different types of conflicts between preferred shareholders and common shareholders and the methods of disposing of these conflicts. The summarizing of the different types of conflicts between preferred shareholders and common shareholders is on the basis of the analysis on the complicated relationship between the both in Chapter I. And how to deal with these conflicts, American courts and Chinese legal system give their answers respectively.The third chapter(Chapter III) puts forward some advice respecting the way to improve and optimize the legal system handling the balance between the rights of preferred shareholders and common shareholders. The advice, which is aiming at the legal system and practice in China, is deriving from the rules designed in Chapter I, meanwhile referring to the theories and the practical experience from abroad. According to the advice, the issuer can only redeem the preferred shares or go into liquidation as required by the preferred shareholders if given conditions are met, necessary procedural arrangements should be made and the right of class vote owned by the preferred should be restricted in merger, the court ought to exercise the power to construe the boiler-plate clauses in the charters of the issuer, and the standard of review used to test whether the management breach the fiduciary duty when balancing the rights between preferred shareholders and common shareholders should be provided in law.