A Study on the Legal and Practical Issues of Preferred Stock
Date Issued
2014
Date
2014
Author(s)
Zhu, Siying
Abstract
It has been a long history for the use and development of preferred stock. Although the first case of preferred stock happened in the 1950s and the law has provided regulation on it for decades, preferred stock is still not that popular among companies and investors in Taiwan. The Troubled Asset Relief Program, in which the American government used preferred stock to save financial institutions and government sponsored enterprises after the 2008 financial crisis, brought attention of people to preferred stock again. It is true that when look back to the last decade, we can still find typical cases of the use of preferred stock, such as the Taiwan High Speed Rail issuing 50 billion NTD preferred stock for financing and the Tai-Shin Financial Holdings Company Tenders for Chang-Hwa Bank.
The preferred stock has many differences from the common stock. It is the creation of the contract between the investors and company. It typically represents the autonomy of company charter under the company law’s regulation. From the perspective of charters autonomy, this paper will discuss issues on the relationship between the preferred stock and the principle of the Equitable Treatment of Shareholders, whether company can set stocks with different voting rights as well as the redemption system of preferred stock.
We can also find that the preferred stock contains both the characteristics of equity and debt, which allows it to separate the control right and property right of the company, making it flexibly used in activities of financing and corporate governance. The use of preferred stock in venture capital fully embodies its characteristic of equity, while in some government involved activities, such as the privatization reform and the Troubled Asset Relief Program, the characteristic of debt in preferred stock is very obvious.
From another perspective, we should notice that the involvement of both contract and company makes the judge difficult to choose which law should use when facing disputation of preferred stocks. Also whether preferred stock holders should be protected by the fiduciary duties of directors has been greatly argued in America for a long time. This paper will discuss the relationship between preferred stock and the director’s fiduciary duties and discuss the system of preferred stock holders’ meeting in detail.
Finally, this paper will give a conclusion as well as the suggestion and prospects of the system of preferred stock for both Taiwan and the Mainland China.
Subjects
特別股
章程自治
股東平等原則
創業投資
民營化改革
Type
thesis
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