Capital Stock, Its Shares and Their Holders: A Comparison of India and Delaware

자료:  http://ssrn.com/abstract=913282

지은이: Vasudev, P. M., The University of Auckland
Worldwide Junior Corporate Scholars Forum Conference,
March 2007.

Abstract:    

The paper explores the origin of "shareholder supremacy" in Anglo-American corporate law and the present legal position of corporate capital stock, its shares and their holders. The study is comparative, and the statutes of India and Delaware are selected for comparison. The paper argues that Indian company law, which is based on English law, adopts the "business model" of corporations that gives at least as much importance to the business of companies as it does to their finances. But American corporate law, as it has evolved over the last two hundred years and exemplified by the Delaware statute, creates a "financial model" in which corporations are treated mostly as issuers of securities, and the statute treats the securities as commodities in which corporations deal. The Delaware statute has a bias in favour of the stock market and adopts the policy of encouraging trade in the securities.

The paper traces the process of development of corporate law in the two jurisdictions, and attempts to explain the divergence in their philosophies in the context of the respective developmental processes. The implications of the two philosophies for corporate behavior and governance are also examined. The comparison also illustrates how Indian company law is converging towards the American financial model, since the government of India adopted the policy of economic liberalization and globalization in the 1990s.

Keywords: Corporations, shareholder supremacy, corporate law, stock market, corporate governance

※ 메모:

Voting Rights or the Empowerment of Share Capital

The law on companies or corporations was, as we have seen, formulated on the salutary principle that the capital contributed by the shareholders would be exposed to business risks, and in turn, the shareholders would be empowered to manage the company, either by electing themselves or others as directors and to regulate the directors. Voting rights were the instruments that empowered the shareholders to elect the directors and regulate them. The principle behind the voting rights attached to shares is that the capital stock of a company represents its “ownership,” which means that it must carry the right to vote on the corporate affairs. A majority rule regime, similar to that in the political democracy, was established for corporations. In corporations, which are essentially vehicles for pooling capital, each share of its capital stock had a vote, similar to every citizen having a vote in the political democracy.25

In the formative years of corporate law, all shares of capital stock had compulsory and equal voting rights, and companies had no freedom either to take away or whittle down the voting rights. But the principle of compulsory and equal voting rights for all shares was abandoned in America during the movement for liberalization of corporate law.26 Companies could issue shares that had no voting rights and they were also free to formulate different varieties of voting rights for different classes of shares. These devices were meant to enable businessmen to retain corporate control even after public issue of the capital stock of their companies.

Although Securities Laws also do not make any efforts to regulate the rights attached to shares issued by listed companies, the stock market has been wary of nonvoting shares or shares with disproportionate voting rights. The New York Stock Exchange earlier prohibited corporations listed on it from issuing shares without voting rights. But this was recently diluted when General Motors issued such shares and the Exchange did not take any action.27