Research On The Exit Mechanism Of Preferred Stock Shareholders

The capital market is the "barometer" of the national economy.The importance of establishing a capital market that matches the development of the national economy is self-evident,and a good capital market demands to have the characteristics of meeting the needs of investors with different preferences and allowing investors to move forward and retreat freely.As the COVID-19 is raging around the world,many Chinese enterprises are facing severe tests,and their survival is in jeopardy.At the same time,investors in the capital market also hesitate to move forward with regard to high-tech entrepreneurial projects with gloomy investment prospects due to concerns about risks.In the context of information asymmetry between investment and financing and mismatch of supply and demand,preferred stocks that are convenient,effective and risk-controllable can relieve the huge pressure on both sides of investment and financing.In developed countries with relatively mature capital markets,preferred stocks are very popular among financing companies because of their ability to not dilute the voting rights of common stocks and to allow companies to avoid rigid debt payment obligations.China launched a preferred stock pilot program in 2014,which has injected fresh blood into the capital market and broadened investment and financing channels.However,years of practical experience in the capital market have proved that the preferred stock market has not burst out of expected vitality.At a time when the global economic growth momentum is insufficient,investors’ awareness of risk management and control is becoming stronger:not only must funds be invested in areas with profitable potential to bring huge returns,but also the investment must be recovered to the greatest extent when necessary.Therefore,in order to stimulate the investment enthusiasm of investors and meet the financing needs of market entities with strong capital needs,it is particularly important to design and improve country’s preferred shareholder exit mechanism to protect the safety of investors’ funds.The design of the preferred stock system in our country has not established a perfect exit mechanism for preferred stock shareholders at the legal part.In view of this fact,the article intends to discuss the usual exit path of preferred shareholders based on the existing literature and the setting of preferred shareholders’ withdrawal clauses in the practice of preferred stock issuance in my country,starting from the basic principles of preferred shareholders’ withdrawal mechanism in the domestic and foreign legislation and judicial situation,it evaluates and analyzes the problems displayed in my country’s current legislation on the withdrawal mechanism of preferred stockholders,and proposes corresponding suggestions for improvement,in order to provide a modest force for my country to improve the system.The main body of this article consists of six parts,and the basic contents of each chapter are as follows:The first chapter is an overview of the exit mechanism of preferred shareholders.In addition,this chapter also conducts a statistical analysis of my country’s preferred stock market,focusing on the industries in which listed companies and non-listed public companies that issue preferred stocks in China’s preferred stock market,and the main terms of issuance of preferred stocks,summarizes the problems presented and the commonalities reflected in the imbalance of the rights and obligations of each company’s issuance of preferred stocks,and then lead to the causes of such"abnormalities"-various options for the exit mechanism of preferred stock shareholders:The problems in the exit channels provide the basis for the detailed description of the problems in the various channels of the exit mechanism for preferred shareholders in the next four chapters,the introduction of extraterritorial experience,and the analysis of the perfect path.Chapters 2 to 5 described the four channels for the exit mechanism of preferred stock holders:The respective problems and ways to improve the preferred stock conversion mechanism,preferred stock redemption mechanism,preferred stock transfer mechanism,and preferred stock dissenting shareholder repurchase request system in my country’s preferred stock practice.Chapters 2 to 5 adopt similar writing ideas.In each chapter,we first analyze in detail the outstanding problems in the exit channels of the preferred shareholder’s exit mechanism,and discuss their adverse effects in detail and the perfect part of the exit channel:First,introduce the extraterritorial experience of the mechanism,select relevant legislation and judicial precedents of countries with more mature common law systems and civil law systems to sort out and summarize;Second,learn from the exit of preferred shareholders based on the experience of countries with more mature systems,we will explore the possible perfect paths for the exit mechanism of various preferred shareholders in our country.The conclusion of the sixth chapter is the summary and refinement of the perfect exit mechanism of my country’s preferred stock shareholders.In this section,based on the background of the upcoming revision of my country’s Company Law,and on the basis of the detailed discussion of the perfect path of the various channels of the preferred shareholder’s exit mechanism in the previous article,the existing aspects of the system of the preferred shareholder exit mechanism in the new company law will be discussed in detail.