Preferred shares give priority profit distribution, fewer rights

Since last year, the author has provided a full suite of legal services to a certain listed state-owned enterprise under the central government (A+H) for its private offering of preferred shares (PS). This is the first PS offering in China by a listed company not in the financial sector.

PS are still new thing to China. They are a type of share regulated separately from the common class of shares under general provisions of the Company Law. PS holders have priority over common shareholders in the distribution of the company’s profits and remaining property. However the rights of PS holders, such as participation in the company’s decision-making and management, are subject to restriction. Their main legal bases include the Company Law, the Guiding Opinions of the State Council on the Launch of a Pilot Project for Preferred Shares (No. 46 [2013]) and the Measures for the Administration of the Pilot Project for Preferred Shares (Order No. 97, issued 21 March 2014; the measures).

In general, PS holders, unlike common shareholders, do not participate in the day-to-day operation and management of the company. In normal circumstances, they do not participate in votes at shareholders’ general meetings.

Cao Chunfen is a partner at Zhonglun W&D Law Firm