On June 28, the Shenzhen Stock Exchange announced the termination of the listing of Zuojiang Technology shares, and finally the "bull stocks" that had been known as "benchmarking NVIDIA" left the market. Today's legal Q&A asks "can 'technology' be listed", and the answer to this question should not only consider the legal provisions, but also consider the consequences of share transfers, such as why Huawei Technologies is not listed, and why Nvidia is listed.
Today's Legal Q&A: Share Transfer
1. Understanding of the listing and financing of technology-based enterprises
Article 20 of the Constitution stipulates: "The State shall develop natural and social sciences, disseminate scientific and technological knowledge, and reward scientific research results and technological inventions." Accordingly, in the mainland, science and technology is a part of the business, and technology is understood as an ordinary product, or a service listed, because the equity can be transferred, the consequence is that the technology is controlled by others, such as "TSMC" in Taiwan.
The Law on the Progress of Science and Technology is based on the Constitution, and Article 42 of this Law stipulates the listing and financing system for science and technology enterprises. Among them, the third paragraph stipulates: "The state shall improve the listing and financing system of science and technology enterprises, smooth the financing channels for the domestic listing of science and technology enterprises, and give full play to the financing function of the capital market in serving scientific and technological innovation." Most people understand it as stocks, and accordingly, this paragraph stipulates that "domestic listing financing channels".
Due to the difficulty in identifying the source of capital, the amended Company Law formally stipulates "class shares", which aims to prevent foreign control over enterprises such as science and technology, resources, etc. However, the listing of shares is still the "design" of free capital, and most foreign investors cannot purchase non-voting rights under normal circumstances, and the preferred shares issued by mainland A-shares are rarely involved by foreign capital, and foreign investors usually invest in energy stocks, telecommunications stocks, etc.
2. Reasons why Huawei Technologies is not listed
Although the second half of the Company Law stipulates that "if the articles of association of the company have restrictions on the transfer of shares, the transfer shall be carried out in accordance with the provisions of the articles of association", the mainstream of share transfer is still that "the shares held by the shareholders of a company limited by shares may be transferred to other shareholders or to persons other than shareholders". If voting shares are issued, even if Huawei Technologies is not controlled by foreign investors, its management may inevitably include foreign personnel, such as directors and supervisors. The degree of secrecy of high-tech enterprises is equivalent to that of "military enterprises", and based on the requirements of secrecy and other aspects, Huawei Technologies is not listed.
Issuance of preferred shares can raise funds, why not Huawei Technologies try? On the one hand, according to Article 11 of the Securities Law, a company limited by shares is required to prepare and disclose a "prospectus" for the issuance of shares, the content of which must at least disclose the investment direction, which is a trade secret for technology enterprises. On the other hand, although the name of Huawei Technologies is "limited company", its essence is still that of a cooperative enterprise through the way of shareholding by the trade union, and the issuance of shares changes the nature of the enterprise.
The change of a cooperative enterprise into a company limited by shares requires the consent of the employees or the trade union, and this kind of "restructuring" is quite difficult in a real legal system or society governed by the rule of law. For example, Japanese companies are less likely to be controlled or merged by others. Huawei Technologies is controlled by the trade union, and there are procedural "obstacles" in the restructuring of "limited company" into a joint-stock company.
Japanese companies are also listed, and some people may ask, how do they go public? The core enterprise is not listed, but a similar company with a different name is set up to be listed, and the aforementioned conditions are accepted by the majority of the people for its products or services, such as Toyota Motor. Even if a similar enterprise is controlled by foreign capital, the core enterprise and basic technology will not be affected, and NVIDIA's listing follows the above rules.
Rules that may be followed by Nvidia's listing
3. Responsibility for the termination of the listing of Zuojiang Technology shares
It is no accident that Zuojiang Technology's share price plunged rapidly until the termination of listing, and the important reason for this is that on January 30, 2024, the China Securities Regulatory Commission notified Zuojiang Technology that the financial information disclosed in 2023 was seriously untrue and suspected of major financial fraud. Accordingly, the responsible directors, supervisors and other senior management personnel of Zuojiang Technology Co., Ltd., as well as the sponsor, shall bear civil liability in accordance with the relevant provisions of the Securities Law.
In the above circumstances, the first paragraph of Article 160 of the Criminal Law stipulates the crime of fraudulent issuance of securities, that is, the issuance of shares by concealing important facts or fabricating material falsehoods in the prospectus, stock subscription and other issuance documents, and the amount is huge, the consequences are serious, or there are other serious circumstances, shall constitute this crime. According to the provisions of the second paragraph, where the controlling shareholder or actual controller organizes or instigates the commission of the acts in the preceding paragraph, it also constitutes this crime.
Depending on the type of shares issued by Zuojiang Technology Co., Ltd., the ways in which shareholders can be compensated for their losses are also different. For example, non-voting shares should be given priority in receiving compensation, or compensation, while voting shares should be delayed in receiving compensation, for example, the responsible senior management, or the sponsor should be given priority in compensating the non-voting shareholders after they have assumed civil liability.
Zuojiang Technology shares to terminate the listing responsibility
As far as the topic of whether "technology" can be listed, there are different positions and different answers. From the overall analysis, if the state invests in basic technology, the listing of science and technology should be approved by the state, otherwise the public interest may be damaged; If it is purely private science and technology and does not accept state subsidies, it is up to the enterprise to decide whether to go public, but it is still necessary to pay attention to the confidentiality of basic technology. On the whole, many private technologies may not have their own core technologies, but in the event of termination of listing due to concealment of important facts, preferred shares should be compensated "preferentially".