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3 - First among Equals?

Other Methods of Creating a Divergence between Voting and Cash-Flow Rights

from Part I - Putting Dual-Class Stock into Context

Published online by Cambridge University Press:  29 October 2021

Bobby V. Reddy
Affiliation:
University of Cambridge
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Summary

Dual-class stock is not the only method by which a founder can create a divergence between control and cash-flow rights in a company.Other solutions, known as ‘control-enhancing mechanisms’, such as board appointment rights, pyramid structures, cross-ownership structures, shareholders’ agreements, derivative instruments, preference shares and loyalty shares, could, on their face, create similar dynamics to dual-class stock.However, those control-enhancing mechanisms entail compromises that make them unpalatable to a founder specifically seeking to list his or her firm, divest of equity and retain control.Additionally, many of those control-enhancing mechanisms would arguably not be permitted for a premium tier company.Dual-class stock presents numerous benefits to a founder over other control-enhancing mechanisms, making them, even if they are permitted on the premium-tier, inadequate substitutes.Furthermore, if dual-class stocks were permitted on the premium tier, it is unlikely that this would result in an influx of other control-enhancing structures, since founders are unlikely to choose them over dual-class stock given the practicalities in using them to create the necessary divergence between control and cash-flow rights.In any case, certain control-enhancing mechanisms are more opaque than dual-class stock structure, and, therefore, the regulators should take a stricter approach to their utilisation than dual-class stock.

Type
Chapter
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Founders without Limits
Dual-Class Stock and the Premium Tier of the London Stock Exchange
, pp. 119 - 141
Publisher: Cambridge University Press
Print publication year: 2021

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  • First among Equals?
  • Bobby V. Reddy, University of Cambridge
  • Book: Founders without Limits
  • Online publication: 29 October 2021
  • Chapter DOI: https://doi.org/10.1017/9781108989893.005
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  • First among Equals?
  • Bobby V. Reddy, University of Cambridge
  • Book: Founders without Limits
  • Online publication: 29 October 2021
  • Chapter DOI: https://doi.org/10.1017/9781108989893.005
Available formats
×

Save book to Google Drive

To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Google Drive.

  • First among Equals?
  • Bobby V. Reddy, University of Cambridge
  • Book: Founders without Limits
  • Online publication: 29 October 2021
  • Chapter DOI: https://doi.org/10.1017/9781108989893.005
Available formats
×