China Introduces Pilot Program for Preferred Shareholders

China’s State Council released the “Guiding Opinions on Launching the Pilot Program for Preferred Shares (Guofa [2013] No. 46, hereinafter referred to as ‘Announcement’)” on November 30, which puts forward provisions on the rights and obligations of preferred shareholders, the issuance and trading of preferred shares, and associated rules and policies. Detailed information can be found below.


Preferred Shares
Preferred shares refer to a type of share issued pursuant to the Company Law, whose holders will have priority over ordinary shareholders on the distribution of company’s profits and remaining assets, but limited rights to participate in the management and decision-making of the company.

However, during the pilot period, issuers may not issue preferred shares with different priorities in terms of the distribution of dividends and remaining assets, but may issue preferred shares with different rights in respect of other terms.


Priority in Profit Distribution
According to the Announcement, preferred shareholders shall enjoy priority over ordinary shareholders in the distribution of company profits according to the agreed par-value dividend rate. Companies shall not distribute profits to ordinary shareholders before paying the pre-agreed dividends to preferred shareholders in full.


Moreover, preferred shareholders also enjoy priority in the distribution of the remaining assets, and in conversion and redemption of preferred shares.


Eligible Issuers
Issuers making public offerings are limited to the listed companies prescribed by the China Securities Regulatory Commission, while issuers making private offerings are limited to listed companies (including overseas listed companies registered within the Mainland) and non-listed public companies.

Issuance Criteria

The preferred shares already issued by a company shall not exceed 50 percent of the total number of the company’s ordinary shares, and the capital raised from the preferred shares shall not exceed 50 percent of the company’s net assets prior to the issuance.


Restriction on Voting Rights
The Announcement has imposed some restrictions on the voting rights of the preferred shareholders, providing such shareholders shall not attend shareholders’ general meetings and their shares do not carry voting rights except for the following circumstances:


  • Where the company’s articles of association relating to preferred shares are to be amended;
  • Where company’s registered capital is to be reduced by 10 percent or more in one time or on a cumulative basis;
  • Where the company is about to undergo merger, division, or change of company form;
  • Where new preferred shares are to be issued; and
  • Other circumstances stipulated in the company’s articles of association.



This article was first published on http://www.china-briefing.com.


Dezan Shira & Associates’ business advisors, tax experts and accountants in Shenzhen can help you with any questions related to establishing or conducting your business in China.

Since its establishment in 1992, Dezan Shira & Associates has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.


For further details or to contact the firm, please email info@dezshira.com or visit www.dezshira.comFor professional assistance in South China, contact Mr. Fabian Knopf at fabian.knopf@dezshira.com


Comments are closed

The Contributor

China Briefing hosts a wealth of business intelligence on legal, tax, and operational issues in China from a practical perspective. Knowledge, expertise and commentary for China Briefing is regularly contributed by Dezan Shira & Associates´ professional legal and tax staff. Currently located in Futian district, Dezan Shira & Associates has been assisting foreign companies in Shenzhen for 22 years.

    Connect with China Briefing:
  1. - Email: Click here

Have Your Say!

Which part of Shenzhen has the best quality of life for foreigners?

View Results

Loading ... Loading ...

  1. Etienne Ducrot: Hi, I’m interested to contact this Foundation. Do you know how? Thanks. Etienne
  2. Emma: Hi Jasmin, I’ve read your article about a new medical center opens in Nanshan at the end of this month....
  3. sherry lee: A simple story with great words…I love it.
  4. Evangeline: Awesome piece!
  5. Glenda: Hi there, I enjoy reading through your article post. I wanted to write a little comment to support you.