A Study On The Protection Of The Rights And Interests Of Ordinary Shareholders In Companies With Dual-Class Share Structure

Equity structure has always been a core issue in corporate governance and capital market development,involving voting on company decisions and the distribution of company profits.Generally speaking,a company’s equity structure can be divided into two types: the "one share,one vote" structure and the dual-class share(DCS)structure.The "one share,one vote" structure allows shareholder decision-making risks and company profits to be allocated based on the number of shares held by shareholders,which promotes the democratization of the company and is therefore considered a prerequisite for company listing in many jurisdictions.However,with the increasing diversification of shareholder demands,more and more companies are abandoning the "one share,one vote" structure and turning to dual-class share structures.Under the dual pressure of practice and market competition,the Singapore Exchange Limited(SGX)and Chinese Hong Kong Exchanges and Clearing Limited(HKEX)accepted the dual-class share structure in 2018.With these changes in jurisdictions,Chinese mainland also began introducing dual-class share structures.In September 2018,the State Council issued a statement allowing technology-innovative enterprises to implement a "same share,different rights" corporate governance structure.With the implementation of the Science and Technology Innovation Board(STAR Market)rules in March 2019,China officially introduced dual-class share structures,with UCloud Technology Co.,Ltd.becoming the first innovative company to successfully list with a dual-class share structure on the STAR Market.Although the dual-class share structure has taken root in China’s securities market,it cannot be ignored that the structure has been controversial.In theory,the adoption of the dual-class share structure deviates from the principle of "one share,one vote," which is the cornerstone of China’s corporate governance rules.In other words,the existing legal framework in China needs corresponding changes,such as adjusting the intensity of information disclosure and internal monitoring mechanisms of companies to adapt to the changes brought about by the introduction of dual-class share structures.In practice,the application of the dual-class share structure will lead to harmful institutional incentives.As the cash flow shares held by the holders of special voting rights shares are minimal,they can bear losses according to the cash flow shares they hold even if they cause harm to the company while seeking private interests,while the interests of ordinary shareholders will be harmed.Especially in China,small and medium-sized investors face significant difficulties in exercising and protecting shareholder rights due to limitations in abilities,information,and other aspects.The dual-class share structure undoubtedly puts small and medium-sized investors in a more vulnerable position.This raises the question of how to construct a supporting system to protect the rights of ordinary shareholders and small and medium-sized investors based on the characteristics of China’s capital market after the introduction of dual-class share structures.In addition to the introduction and conclusion,this paper is divided into four chapters.Chapter 1 provides an overview of double-tier equity structure,after a brief introduction of the definition of double-tier equity structure,it analyzes the reasons why double-tier equity structure is welcomed by capital markets around the world nowadays and the current development of double-tier equity structure in major capital markets from the perspective of the development of business history.Chapter 2 analyzes several potential risks faced by common shareholders of companies with double-tier shareholding structures and the underlying reasons for them according to the characteristics of double-tier shareholding structures.In Chapter 3,the practices of securities markets(Chinese Hong Kong and Singapore)that adopt strict restrictions on companies with double-layered shareholding structures similar to those of China are selected for a comparative analysis of the institutional system for the protection of the rights and interests of ordinary shareholders of companies with double-layered shareholding structures in China’s KSE.Chapter 4,based on Chapter 3,analyzes the shortcomings of China’s system for protecting the rights and interests of ordinary shareholders of companies with double-tier shareholding structures.Chapter 5introduces the experience of the United States and Canada on the "light regulation" of double-tier shareholding structure and the inspiration for China.Chapter 6 discusses the suggestions for improving the system of protecting the rights and interests of common shareholders of companies with double-tier shareholding structure in China from four dimensions,namely,the improvement of legislation on double-tier shareholding structure,ex ante legal restriction measures,ex post supervision and management measures,and ex post compensation and remedial measures.