Corporate and Trust Structures: Legal and Illegal Dimensions by David Chaikin

Author:David Chaikin [Chaikin, David]
Language: eng
Format: epub
ISBN: 9781925588866
Publisher: Australian Scholarly Publishing
Published: 2018-04-03T22:00:00+00:00

Alibaba Partnership

The Alibaba partnership is a mechanism designed to allow the business founder, as well as the management, to maintain control of the business they have built from scratch even when their founders’ shares have been diluted by the IPO. It is only achievable in the securities markets that permit a listed company to issue two classes of shares. The most common dual-class share structure is that investors hold ordinary shares that carry one vote per share, while the founders or management hold weighted shares that carry multiple votes per share.30

Currently, only the stock markets in the United States, Brazil, Canada, France, Italy, Sweden, Switzerland, Denmark, Russia and Finland allow such shares.31 The dual-class share structure disrupts the conventional idea that shareholders, by putting forward their capital and enduring the risks, should ultimately control the company. The notion of one share/one vote ensures, in a democratic way, that a shareholder has the amount of influence in the company that is equal to the amount of risk they take. Displacing this notion, the dual-share structure is likely to lead to management entrenchment.32

Despite such criticism, the enormous financial advantages, or perhaps the tremendous fear of missing out on another big whale like the Alibaba group, have lured more and more stock exchanges, such as London and Singapore, to float the possibility of opening up the market to dual-class shares companies.33 In February 2017, in a discussion paper on the effectiveness of its markets, the UK regulator floated the possibility of loosening its restrictions. The Singapore Exchange has also published a general announcement clarifying that their existing secondary listing framework has the flexibility to accommodate dual-class shares companies.34

However, the Alibaba Partnership that has been allowed to list on the NYSE has an unorthodox dual-share structure in that it does not give the individual partners of the Alibaba Partnership weighted shares to concentrate control within the individual founders. Instead, the Alibaba Partnership as a whole has been conferred with the exclusive right to appoint up to a simple majority of the members of the board, defeating any majority shareholder’s attempts to take over the company by taking control of the board.35 The Alibaba Partnership structure has been promoted as a solution to preserving the corporate culture shaped by the founders while at the same time enhancing the collective responsibility.36 However, the structure may also reflect the distrust of the founders who fear that individual members of the management may go rogue and hijack the company. Currently the Alibaba Partnership has 36 members including 27 members of management and nine members of management of Ant Financial Services and each of them has one vote in all partnership votes.37 The number of partners in the Alibaba Partnership is not fixed and can be reduced by the retirement or departure of partners or increased by the election of new partners.38 One matter that is reasonably clear is that most of partners are Chinese citizens.39 Nevertheless, the unique structure poses the question who has the ultimate actual control

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