Research On The Differential Voting System Under The Science And Technology Innovation Board

As a wave of reform led by the internet and technology has swept the world,a large number of scientific and innovative enterprises emerge rapidly.The development of scientific and innovative enterprises not only depends on high and new technology,but also on the support of huge funds.In order to solve the conflict between corporate financing and founder’s control rights,many countries have introduced differential voting rights system.In June 2019,the Supreme People’s Court published the Several Opinions on Providing Judicial Guarantees for the Establishment of the Science and Technology Innovation Board and the Pilot Program of the Registration System Reform,allowing scientific and innovative enterprises to issue such shares with special voting rights.It indicates that China succeeds in introducing differential voting rights system,and it again arouses a heated discussion on the system.Based on Science and Technology Innovation Board,this thesis will elaborate on the necessity of differential voting rights system,analyzes the problems existed in practice,and puts forward some suggestions for improvement.In addition to the introduction part,this thesis is divided into four parts,about 20,000 words.The structures in detail are as follows:The first part interprets the relevant basic knowledge of the Science and Technology Innovation Board as well as the differential voting rights system.It first explains the establishment,purpose and function of the Board.From the announcement of the establishment in November 2018 to the official opening in June 2019,it takes only seven months.The efficient launch mainly aims to solve the financing needs of China’s scientific and innovative enterprises and to attract more high-quality enterprises to be listed on the domestic market.Secondly,it explains the concept of the differential voting rights system which is called a two-tier shareholding structure in foreign countries.It refers to the issuance of shares with special voting rights by issuers except ordinary shares in accordance with the provisions of Article 131 of the Corporate Law.The number of voting rights owned by each special voting share is greater than that owned by each ordinary share,and other shareholders rights are the same as those of ordinary shares.Finally,the key terms of the differential voting rights system under the Board are illustrated.Since The Rules of the Shanghai Stock Exchange for the Listing of Stocks on the Science and Technology Innovation Board is largely based on The Rules for listing on the main board of the stock exchange of Hong Kong,this thesis makes a comparative analysis of the key clauses about differential voting rights system in the two Rules.The second part expounds the necessity of implementing differential voting rights system under the Science and Technology Innovation Board.Firstly,the introduction of differential voting rights system can,to a certain extent,solve the contradiction between the continuous financing of innovative enterprises and the control rights of founders,owing to a huge demand for funds by innovative companies and the founder’s emphasis on control of the company.Secondly,if the scientific and innovative enterprises put into practice differential voting rights system,then the team of founders could take control of the company with fewer shares and they thus have the right to make decision by themselves,making the company less troubled by hostile acquisition.Finally,the reason why the differential voting rights system needs to be introduced lies in the changes of governing philosophy of many companies from the rule of majority decision based on capital to that based on wisdom,and from shareholder homogeneity to shareholder heterogeneity.The third part discusses the problems existed in practice of the differential voting rights system under the Science and Technology Innovation Board.First of all,although the differential voting rights system adopted by the scientific and innovative enterprises guarantees the founders’ control rights of the company,several problems still exist,including insufficient protection for investors and the inability of investors to protect their litigation rights after their interests are violated.Secondly,scientific and innovative enterprises which implement the System in practice are prone to delay information disclosure with injustice.Finally,the enterprises will rely too much on the talents and business strategies of the founders in the implementation of the differential voting.If founder shareholders abuse their voting rights,it will be difficult to monitor their rights of control.The fourth part puts forward suggestions for improving the problems of the differential voting rights system under the Science and Technology Innovation Board.First,the protection of investors can be strengthened by improving the judicial remedies for small and medium-sized investors and the provisions on sunset provisions in the differential voting rights system.Second,the information disclosure of scientific and innovative enterprises should be continuously strengthened by enhancing the punishment mechanism for enterprises violating the obligation to disclose information.Finally,the governance abilities of scientific and innovative enterprises should be gradually improved by perfecting China’s independent director system and enhancing the independence of directors.With the Science and Technology Innovation Board as the background,the thesis elaborates the necessity of implementing the differential voting rights system,and analyzes and demonstrates the problems in the practice of carrying out the differential voting rights system under the Board.It is clearly stated that with the passage of time the shortcomings of the differential voting rights system will gradually appear in the market because the implementation period of the system in China is relatively short.There is no need,however,to abandon the system because of its disadvantages.Instead,the disadvantages should be made up properly and the differential voting rights system should be perfected gradually.