Corporate ownership structure is not only a legal problem, but also a business problem. Whenever an entrepreneur comes to consult the company's equity structure or corporate structure, I will first calm down and listen to the company's development status and development plan. A good ownership structure must first be able to meet and promote business development, and then legal, financial, and tax issues. Enterprises at different stages of development, challenges are different, the task is not the same. The first task of a start-up company is to survive; The primary task of a growing company is to achieve rapid development; The main task of scale companies is to achieve sustainability. The development stages of enterprises are different, the tasks are different, and the needs of operators are also different. In the growth period of the company, the enterprise should give priority to efficiency, make quick decisions, implement quickly, seize every rapidly changing opportunity, and become bigger and stronger. As a corporate authority, the equity meeting determines the development direction of the enterprise to a large extent, and its operation and decision-making must be efficient and fast, and the efficiency of the operation and decision-making of the shareholders' meeting depends on the ownership structure of the company. Therefore, the ownership structure of the growing company should be designed from the perspective of the business needs of the rapid development of the enterprise, rather than metaphysical copying or imitation. Jiao Hanwei, lawyer of Shanghai Guolinghouse Law Firm, will discuss the shareholding structure of growing companies in combination with practical experience for reference.

The composition of company shareholders should be simple

The shareholders' meeting is the corporate authority. Shareholders' meetings are divided into regular meetings and temporary meetings. Regular meetings shall be held on time in accordance with the provisions of the articles of association. An interim meeting shall be convened if the shareholders representing more than one tenth of the voting rights, more than one third of the directors, the board of supervisors or the supervisor of a company without a board of supervisors. According to China's company law, whether it is a regular meeting of the shareholders' meeting or a temporary meeting of the shareholders' meeting, the company's shareholders' meeting must be conducted in accordance with strict procedures, including but not limited to notification procedures, procedures, voting procedures, etc. As mentioned above, the primary task of a growth stage company is to achieve rapid growth. Enterprises should prioritize efficiency, make quick decisions, implement quickly, seize every opportunity, and become bigger and stronger. The simple composition of shareholders can ensure the efficient operation of the shareholders' meeting in terms of notification, discussion, voting and other procedures, and it is easier to reach effective resolutions on the issues of the shareholders' meeting efficiently. If the ownership of the company is dispersed and the composition of shareholders is complicated, the high probability will lead to the inefficient operation of the company. Because everyone has their own cognition, business habits and business characteristics, and there is no right or wrong, when the composition of shareholders is complex, shareholders will need to negotiate for a long time, it is difficult to make efficient resolutions. On the other hand, the composition of shareholders is complicated, and it is difficult to ensure the consistency of the company's management policy. Therefore, although the legal level of limited liability company shareholders can be less than 50 people, but from the corporate management level, especially in the early stage and growth stage of enterprises, the composition of shareholders should be relatively simple, not easy to scale too large. Otherwise, the high probability will affect the company's operating efficiency, which does not meet the business needs of the company's growth period.

Do not have too many natural person shareholders

China's company law stipulates that market operators such as enterprise legal person, partnership organization and natural person can become company shareholders. A limited liability company can be established by less than 50 shareholders, but it is not easy for natural person shareholders to constitute too many shareholders of a limited liability company. Because if there are too many natural persons, the notice, convening, voting and other matters of the shareholders' meeting are cumbersome, which seriously affects the operation efficiency of the shareholders' meeting. At the same time, natural person shareholders will face birth, old age, illness and death, marriage changes, inheritance disputes, disputes with the third party debt and other uncontrollable events; If the natural person shareholder is an employee, there will be high probability events such as post change and resignation. Once the above situation occurs to natural person shareholders, it will cause shareholder change, equity disputes or equity disputes with a high probability, which will bring great challenges to the stability of the company's equity, and even lead to passive changes in the composition of shareholders, destroy the personality of the limited liability company, and seriously affect the stable and sustainable development of the company. If the company has too many natural person shareholders, how to solve it? We propose to set up a natural person shareholder shareholding platform, which can take the form of a company or partnership according to business needs, and natural person shareholders other than the founder indirectly hold the company's equity through this shareholding platform. On the one hand, this design isolates the uncertain risks brought by the personal factors of natural person shareholders, and ensures the company's equity structure is relatively stable. On the other hand, the decision-making power of the company is centralized, which ensures the efficient operation of the company's shareholders' meeting and provides a system guarantee for the rapid development of the company. Otherwise, it will not only affect the operating efficiency of the company, but also endanger the stability of the company.

Equity is not easily distributed equally

In terms of the equal distribution of corporate ownership structure, it has advantages and disadvantages. On the one hand, the company's equity is decentralized, and the control rights are shared by several shareholders, so as to achieve the effect of mutual supervision and checks by shareholders, ensuring that the company's decision-making is more democratic, which can not only restrain the possible major shareholders' behavior of "pursuing public interests" to a certain extent, but also ensure the steady and sustainable development of the company. On the other hand, the equal distribution of the company's equity, the dispersion of the company's voting rights, and the checks and balances of shareholders will inevitably lead to the decline of decision-making efficiency to a large extent, so that the company cannot respond to the rapid market changes in a timely manner, and miss the development opportunity. Obviously, the equity structure of equal distribution can be applied to mature enterprises, but not to enterprises in the start-up and growth stages. For enterprises in the initial stage or growth stage, many business policies are not right or wrong, the key is to face the rapidly changing market environment, the first time to make a choice, embrace the new wind, improve in the development, and achieve growth in the trial and error. Only with concentrated ownership can we make efficient decisions at the first time and seize rapidly changing market opportunities efficiently. At the same time, the equal distribution of the company's equity may lead to a stalemate in the operation of the enterprise, especially when the shareholders cannot reach an agreement on the matters discussed and are unwilling to make concessions to each other, which will lead to the failure of the shareholders' meeting to reach any effective resolution, which will lead to the paralysis or turmoil of the company's operation, and even eventually lead to the split of the entrepreneurial team and the failure of the project. As in the case of real Kung Fu. Therefore, the company should be careful to use the equal distribution of equity structure, especially in the start-up and growth stages of the company.

Flexible allocation of shareholder voting rights

The development of the company needs to continue to carry out equity financing, series A, series B, series C, as well as IPO listing of new shares, each round of financing will certainly dilute the founder's equity in the company, at this time how to better control the company's shareholders meeting? Under the current company law, the single-tier ownership structure is the mainstream model, based on the principle of "one share, one right", the shareholders of the company exercise their voting rights according to the proportion of investment or the number of shares held, and the number of voting rights is consistent with the proportion of shareholding. In the single-class share structure, financing necessarily means the dilution of the shareholding ratio and the voting rights of shareholders in direct proportion. According to the company law of our country, whether limited liability company or joint stock company, the voting rights of shareholders can be differentiated according to the operation needs, that is, the implementation of dual-class share structure. Dual-class share structure is a corporate governance system based on the concept of "same shares with different rights". Companies with dual-class share structure usually issue two kinds of shares or stocks with different voting rights, such as ordinary voting shares, where each share has one vote. The other is a super-voting stock, where one share has N votes. Among them, ordinary stocks are mainly issued to the majority of public investors or financial investors, while super stocks are mainly issued to the company's founder or management, with the ultimate purpose of realizing the founder or management's control of the company's shareholders' meeting or shareholders' meeting through the special setting of the voting rights of stocks. Dual-class share structure is a kind of institutional innovation. The equity financing of companies with dual-class share structure will lead to dilution of shares, but it does not necessarily lead to proportional dilution of the company's voting rights. Shareholders of a company can use the dual-class share structure to control the company's shareholders' meeting while holding minority shares. The flexible allocation of shareholder voting rights will greatly meet the management needs of managers to maintain the right to speak in the company when the shareholding ratio is diluted. For example, in the process of financing, the founder of the company can release 40% of the equity, but only 20% of the voting rights. In this way, the company can raise the necessary funds for development, and the founder can control the absolute control of the company's shareholders by holding 80% of the voting rights of the shareholders' meeting.

The perfect upgrade of Haidilao's shareholding structure

Haidilao is the representative brand of Chinese catering in China. It was originally a small hot pot restaurant with only four tables opened by Zhang Yong and Shi Yonghong in Jianyang, Sichuan Province. In 1994, Zhang Yong gathered his girlfriend Shu Ping, his classmate Shi Yonghong and his girlfriend Li Haiyan, and raised 8,000 yuan to establish the first Haidilao store. Zhang Yong did not contribute. Because I did not know how to name the hot pot restaurant at that time, I used the name of "Haidilao" this Sichuan mahjong. At the beginning of the business, Haidilao's shareholding structure is: four people each hold 25%. In terms of operation, Zhang Yong led the project development, and Shi Yonghong assisted.

With the expansion of the scale of the company, the problems of enterprise management and development are more and more complicated. Zhang Yong believes that the other three founders have been unable to keep up with the pace of project development, and he first let his spouse Shu Ping leave Haidilao and no longer participate in the company's management. In 2004, Mr. Zhang let Mr. Shi's wife, Li Haiyan, leave the company. In 2007, Zhang Yong let Shi Yonghong no longer participate in the company's operation and left Haidilao. At this time, the shareholding structure of Haidilao is: Zhang Yong and his wife hold 50%, and Shi Yonghong and his wife hold 50%. Mr. Zhang still dominates Haidilao's operations.

In 2007, Zhang Yong bought 18 per cent of the company from Shi Yonghong and his wife at the price of their original capital contribution. After the completion of the equity transfer, Zhang Yong and his wife held 68% in total and became the absolute controlling shareholder of Haidilao. In 2009, Haidilao was restructured. Jianyang Jingyuan Investment Co., Ltd. was established, with 52% held by Zhang Yong and 16% held by Shu Ping, Shi Yonghong and Li Haiyan each. After the reorganization, the shareholding structure of Haidilao is as follows: Jingyuan Investment holds 50%, Zhang Yong holds 25.5%, Shu Ping, Shi Yonghong and Li Haiyan each hold 8%, and other employees hold 0.5% after equity incentive. After the equity restructuring, Zhang Yong personally held a total of 51.5% shares of Haidilao through direct shareholding and indirect shareholding, but he personally controlled 75.5% of the voting rights of Haidilao through restructuring, and became the absolute controlling shareholder of Haidilao.

Since then, Haidilao has entered a period of rapid development. In 2017, the revenue of Haidilao was 10.2 billion, the net profit was 1.2 billion, and Haidilao became the fastest growing Chinese catering brand. On September 26, 2018, Haidilao was listed on the Hong Kong Stock Exchange. As of July 26, 2019, Haidilao has a market value of HK $167.48 billion, ranking first in the Chinese catering market in China and the world.

Haidilao can achieve today's results and its ownership structure is not unrelated. Haidilao's original evenly distributed shareholding structure was a time bomb for the company's development. However, in 2007, based on the project has been dominated by Zhang Yong, and Shi Yonghong has a great pattern, Zhang Yong through the transfer of 18% of Shi Yonghong's equity, the husband and wife total 68%, established their core shareholder status. In 2009, Zhang Yong controlled 75.5% of the voting rights of the company through the design of the company's equity structure, and then personally controlled the company's shareholders' meeting. Moreover, in this equity structure, Zhang Yong's control of Haidilao Company was not affected by his wife's shareholding ratio. Each step of the adjustment of Haidilao's shareholding structure must be carefully considered and strategically significant. The simple, stable and centralized ownership structure provides the system guarantee for the rapid development of the company.

Jiao Hanwei

Chief partner and lawyer of Shanghai Guohillhouse Law Firm

Have more than 10 years of legal service experience and more than 5 years of operating experience in the cosmetics industry, familiar with law and business, He is good at providing enterprises with cosmetics business legal services, legal counsel, equity structure, equity incentive, equity financing, equity acquisition, brand management, brand rights protection, brand acquisition, business negotiation, litigation and arbitration and other solutions for the whole stage of enterprise development from the perspective of law and operation. He has led many corporate equity restructuring, equity incentive, equity financing, factory acquisition, brand acquisition and other cases, and has rich experience in practical operation.