Research On The Protection Of Preferred Stockholders’ Equity

As a special kind of investment and financing tool, Preferred stock has already been widely adopted in the international capital market. In November 2013, the Guidance of the Implementation for the Preferred Stock Pilot of the State Council was carried out. And the Administration of the Preferred Stock Pilot of China Securities Regulatory Commission; (CSRC) also issued in March 2014. Thus, preferred stock system was formally introduced in our country. This is a big breakthrough in China’s capital market. The advantage of the preferred stock system lies in the superiority that the right of preference shareholders which obtains the distribution of company profits priors to common shareholders. While preferred shareholders’ rights of decision-making, when they participate in company business management activities, makes the preference shareholders in a more vulnerable position. Ordinary shareholders get the distribution of the profits of company after the preferred shareholders profit distribution. And the preferred shareholders’ right which obtains the profit distribution of ordinary shares depends on the resolution of the shareholders’ meeting. Therefore, it is obviously that the preferred shareholders’fundamental interests are threatened by the ordinary shareholder.This paper is divided into three parts. The first part elaborates the preferred stock system and the general theory of shareholders’ equity. Firstly, it is a necessary and fundamental task to protect the interests of the preferred shareholders. Namely, the preferred shareholders get priority in the right of claim which can allocate after-tax profits of the company. Secondly, it focuses on the analysis of the necessity and legitimacy of protecting the rights and interests of preferred shareholders, and points out that the protection of preferred shareholders is the requirement of substantial equality of shareholders. The second part firstly introduces the current specific rules and regulations for the protection of the rights and interests of preferred shareholders, including the issuing restrictions, legal category, voting system, exiting mechanism etc. Then based on an in-depth analysis of the preferred shareholders, and based on the analysis of the condition of the realization of the dividend, this paper discusses the problems that the preferred shareholders are weaker than the controlling shareholder, and their interests may be affected by the company and the controlling shareholder.The condition that preferred shareholders obtain the distribution of the company’s profits should be in line with the four elements:available after-tax profits for distribution; distribution plan of the board of directors; resolution of the general meeting of shareholders; implement of the resolution of the board of directors. And the innovation of this paper bases on the four elements that we discussed above. Combining with practical experience of the company law and capital market, this paper analyzes the existing provisions of protecting the rights and interests of the preferred shareholders one by one. And this paper summarizes the problems existing in the existing regulations. Corresponding to the shortage, the third part puts forward recommendations for the legislative and regulatory activities. And this paper creatively puts forward the mandatory sue of the distribution dividend which will make the protection system of the preferred shareholders’ rights and interests to be improved.