Rule for preferred stock in China: overthrow of the principle of 'equal shares, equal rights'? ? From a comparative perspective

• Author: XU Donggen
• Pages: 538-550

FRONTIERS OF LAW IN CHINA

VOL. 11 SEPTEMBER 2016 NO. 3

DOI 10.3868/s050-005-016-0031-9

ARTICLE

RULE FOR PREFERRED STOCK IN CHINA: OVERTHROW OF THE PRINCIPLE OF

“EQUAL SHARES, EQUAL RIGHTS”? — FROM A COMPARATIVE PERSPECTIVE

XU Donggen*

Abstract The principle of “equal shares, equal rights” was established by the

Company Law of 1993 of the People’s Republic of China. At the initial stage only

issuance of common stocks was allowed and the issuance of preferred stocks was

interpreted as prohibited. The Company Law of 2006 has changed the rigidity of

provisions of the Company Law of 1993 and laid down the legal foundation for issuance

of preferred stock. The Rule for Administration of the Pilot Project for Preferred Stocks

released on March 21, 2014 by the China Securities Regulatory Commission started the

issuance of the preferred stocks in the Chinese capital market. The establishment of the

legal system for issuance of preferred stock in China is not the symbol of overthrowing

the principle of “equal shares, equal rights,” but the expansion and development of the

principle of “equal shares, equal rights” in a new era.

Keywords preferred stock, Company Law, equal right, preferred shareholder, institutional

investor

INTRODUCTION .................................................................................................................... 539

I. THE PILOT PROJECT FOR PREFERRED STO CK IN CHINA TO PROMOTE CORPORATE

FINANCE ................................................................................................................. 540

II. FROM RIGIDITY TO FLEXIBLE RULE OF COMPANY LAWS WI TH RESPECT TO ISSUANCE

OF PREFERRED STOCKS .......................................................................................... 542

III. SPECIAL LEGAL STATUS OF THE INVESTOR OF PREFERRED STOCKS ..................... 544

IV. ARE RIGHTS OF PREFERRED SHAREHOLDERS DEFINED BY CONTRACTS OR ARTICLES

OF ASSOCIATION?................................................................................................. 544

V. PREFERENCE ON DIVIDENDS DISTRIBUTION .......................................................... 546

VI. ATTENDANCE OF THE SHAREHOLDERS’ M EETING AND VOTING RIGHTS.............. 547

VII. REDEMPTION AND OTHER RIGHTS ...................................................................... 548

CONCLUSION........................................................................................................................ 549

* (󰔎) Ph.D in Law, University of Fribourg, Switzerland; Professor, KoGuan Law School, Shanghai

Jiao Tong University, Shanghai 200030, China. Contact: xudonggen@sjtu.edu.cn