Social Sciences in China (Chinese Edition)

No.9, 2013

Classified Shares and the Evolution of Chinese Corporate Law

(Abstract)

Zhu Ciyun and Shen Zhaohui

A fully developed financing market is the internal driver of corporate system changes, which is one of the laws that motivate the evolution of corporate law. Since a classified share possesses the dual nature of a creditor’s right and a shareholder’s right, it is in essence the separation of the economic interests of shares from their voting rights. The creation of classified shares has not only created huge space for corporate financing, but will have a profound impact on the overall development of Chinese corporate system. It will also promote the system innovation and perfection of business organization law. Classified shares have fundamentally broken the corporate structure and motivation basis characterized by proportional economic benefits and voting rights, and have ascribed new meaning to the equality principle of shareholders. The fiduciary duties, as the core of business organization law, will tend further toward multi-level development, and the interactions between mandatory regulations and the self-governing functions of corporate articles will play a greater role in the private creation of classified shares. China should implement the principle of legality to construct a classified share system based on a balance of interests among different groups.