Theory on Preferred Stockholder Right and its Application for Taiwan

Despite the rich history of Delaware case laws on the preferred stock topic, Professors Bratton and Wachter observed that preferred stock is undertheorized. Occupying a space between debt and equity, the device draws on characteristics of both, but never seemingly feels at home given any one of the two framework in its entirety. For Taiwan, a few limited cases had also brought preferred stocks into the spot light. Altogether, there appears to be much to be said on the topic of preferred stocks. Starting from a positive review, this Thesis explores critically the Delaware case laws for incongruities and inconsistencies. The focus is on the extrapolation or progression of logical reasoning from higher level principles. The goal is to demonstrate some dissatisfaction with what the law is now, and to hopefully in turn to pave the way for what the law should be. The review begins in the 1920s and carries all the way through the most recent ones after 2010. Relying on the same contractarian approach to read the corporate contracts among the relevant corporate constituents, this Thesis next engages in a fundamental review of some hypotheses of mandatory fiduciary protection as a basis for the preferred stockholders. Ultimately for Delaware, this Thesis finds that the bifurcating treatment should be handed out with a careful analysis of the transactional context that the preferred stockholders’ bargain sought to completely address. Outside that context, a fiduciary review of ex post fairness still governs. For Taiwan, the preferred stock law is divided between the Closed and non-Closed Corporation context. The extant non-Closed Corporation cases indicate a general tendency for the Taiwanese court to adopt a full contractual framework. And, given this further reaching contractual framework, the protection against ex post modification of the preferred stockholders’ stakes is adequate. Furthermore, as a natural extension into the Close Corporation context, a full contractual framework may suit Taiwan.