A Comparative Study on Voting Rights of Preferred Shareholders in China

Abstract

Shares can be divided into common and preferred shares based on different shareholder’s rights. Generally, holders of common shareholders have the following rights such as unlimited voting rights, unlimited dividend possibilities and unlimited rights on liquidation. As for preferred shares, the shareholders’ rights are usually provided by the articles of association. Unlike the US or English law which allows multiple classes of preferred shares and entitle the company itself to having strong flexibility of establishment of different shares in its bylaws, the Chinese Company Law has not recognized different classes of shares. However, Article 131 of the Chinese Company Law authorized the State Council of China to enact provisions for different kinds of shares other than common shares, which is regarded as the fundamental clause of developing preferred shares. As expected, the Guiding Opinion Concerning the Pilot Implementation of Preferred Shares (hereinafter referred to as the 2013 Guiding Opinion) was released by the State Council on 30 November 2013. Following the 2013 Guiding Opinion, Measures for the Administration of the Pilot Program of Preferred shares (the 2014 Measures for short) was promulgated by the China Securities Regulatory Commission on 21 March 2014. As the only effective document involved in the field of preferred shares in China, the 2014 Measures has played a significant role not only in helping dealing with disputes related to preferred shareholders’ rights, but also in helping utilizing the preferred system as an alternative tool to raise finance or funds in the absence of relevant stipulations in the Chinese Company Law. Voting rights of preferred shareholders are a major concern both for legal practitioners and academics, among others, as the voting right functions as deciding who can be the real owner of the company. Hence, this essay will focus on voting rights of the preferred shareholders within the scope of the 2014 Measures and illustrate the legal practice of several advanced countries and regions in this respect by comparative approaches, aiming at putting forward operable suggestions to solve present dilemma having existed in the Chinese preferred share market.