Study On Chinese Preferred Stock Rules And Their Theoretical Implications From A Comparative Law View With Delaware Cases

Preferred Stock is both highly theoretic and practical.The experiences of foreign countries indicate that preferred stock is useful for finance,corporation governess and merger&acquisition.However,legal conflicts of preferred stock are unavoidable:the rights of preferred stock are decided in contract while Corporation Law rules also apply.Clear and proper rules are needed to solve the conflicts of rules and interest.Delaware case law illustrates that(1)allocation in acquisition and(2)Mandatory dividend and redemption rights are typical preferred stock disputes.Through Capital Master Fund,Ltd.v.James and SV Investment Partners v.Thoughtworks,Inc,two new and leading Delaware cases,we could see that the court has always had problems on choosing between the contract and corporation rules to apply.The dilemma reflects that the court highly respects the board’s business judgment and uses common stock interest maximum standard,resulting in the preferred stock’s vulnerability.Compared to Chinese legislation,including Pilot Administrative Measures for Preferred Stock,we would find that the current law provides too many protections for preferred stock holders.Such system may discourage the corporation to issue preferred stock.A new set of rules,which applies corporation value maximum rule,uses good faith as standard and focuses on the procedure of the board’s decision,with supporting measures should be established.Preferred stock also has theoretic implications.It could help us update our understanding of "three principles of capital" rules and "holder’s equal rights" rules in corporation law.Further,to study preferred stock is to explore the boundary between contact law and corporation law,also the relationship between compulsory rules and free will.It contributes to establish the conclusion that the rule of law is to allow people to pursue whatever they want under fee will within the bottom line of fairness drew by law.