⚠️“Pain Points” of Corporate Governance

The capital market has long been suffered from some "pain points" of corporate governance, which can be summarized into following three aspects:

(1) Right holders can hardly exercise their rights smoothly

No matter it is to replace executive managers, to change accounting policies, to convene an extraordinary shareholders' meeting, or to enforce a Put Option, Drag-Along, or Anti-Dilution of the shareholders agreement, when exercising its shareholders rights, investors will often inevitably need the cooperation of other parties like company secretary, actual controller, executives, registration agents and even the official registration offices. Sometimes, this could be very difficult and challenging, not only time-consuming and costly, but also may change into a protracted shareholders’ disputes, even lead to a serious consequence like business shutdown.

(2) Obligors sometimes deliberately violate their obligations

During an equity share transaction, buyer may delay paying of the consideration, whereas, seller may maliciously retain the company's seal, license, or postpone the closing process; In a company's daily operation, managers may abuse their authority, actual controller may misappropriate operational funds... To sum up, all of such bad behaviors can be categorized as "acts of breach", either breaching a share transaction contract (such as share subscription agreement or share transfer agreement), or violating a constitutional document of the company (e.g. the articles of association, bylaws, shareholders agreement, or operational agreement).

(3) Untimely and inaccurate information disclosure

Transfer of control rights, private placements, acquiring material voting shares exceeding reporting threshold ratio, such significant changes of shareholding structure of a company, as well as the company’s governance records like shareholders meeting resolutions or board meeting minutes etc., all these information are crucial indicators for assessing a company's future strategy, profitability, and valuation of equity shares, and will directly influence the investment decisions of investors and the valuation of the company concerned. Untimely, inaccurate or incomplete information disclosure often becomes major reasons that caused shareholders disputes or securities transaction disputes.