Research On The Application Of Convertible And Redeemable Preferred Stocks In Private Equity Financing

At present,the main body of preferred stock issuance in China only includes listed companies and non-listed public companies,and does not include small and medium-sized start-ups that need private equity financing.Preferred stock is an effective way to solve the financing difficulties of small and medium-sized enterprises.Enterprises can only attract private equity investors through VIE framework for financing,and then go public in Hong Kong and overseas capital markets.In view of the slow development of preferred stock in China and the imperfect supporting system,this paper takes the Xiaomi Cooperation which has been successfully listed in Hong Kong after several rounds of preferred stock financing as an example,through the study of the design ideas and implementation of the preferred stock clauses of the case company,the risks and Countermeasures brought about by preferred stock financing,and the positive impact of preferred stock financing,reveals the preferred stock in private placement.How to achieve the balance of interests between investors and financiers in equity financing,refine the design and application ideas and risk prevention measures of convertible redeemable preferred shares in private equity financing.The following findings are found in this study:Firstly,the design of preferred stock in private equity financing embodies the distinct characteristics from the listed company's preferred stock pilot.It mainly manifests that the converting and redemption rights of preferred stock are owned by investors,and it reflects the characteristics of high risk and high return.In accounting treatment,it is established as a financial liability rather than an equity tool out of the principle of prudence.Secondly,there is strong flexibility in the application of preferred shares.Private equity financing is essentially equity financing,which can help financing enterprises to obtain a certain premium space and raise more funds.At the same time,preferential dividends can be postponed until the withdrawal of institutions to decide whether to issue or not reduces the financial wind of enterprises.Insurance,the voting rights of preferred stock will not be restored because of the failure to pay dividends,which will affect the control of the founder team over the enterprise.While losing the voting rights,preferred stock shareholders can guarantee their core earnings through multi-channel exit,thus realizing the balance of interests between investors and financiers.Thirdly,there is control over the financing of preferred stock.The important risks such as dilution of ownership,redemption of preferred shares and dividend issuance should be matched with corresponding corporate governance measures and detailed provisions of preferred shares,so as to reduce the risk of preferred shares financing,while protecting the respective interests of common shareholders and preferred shareholders;fourth,preferred shares as an important means of private equity financing,its superior owners.We should introduce high-quality preferred shareholders,improve the ownership structure and capital structure of enterprises,play the certification effect and broaden the financing channels of enterprises,provide corresponding value-added services and business synergies to the invested enterprises,so as to help the financing enterprises achieve rapid growth.The innovation of this paper lies in:firstly,there are few relevant studies on the preferred shares of non-listed private enterprises at present,taking the convertible redeemable preferred shares of millet group as the research object has certain innovation;secondly,the implementation status of preferred shares of listed companies and the implementation status of preferred shares of case companies are compared.According to their different characteristics and combined with their respective advantages,this paper summarizes the design and application of preferred stock clauses in private equity financing as well as risk prevention measures.