Dual-Class System of Capital Company Formation in the BRICS Countries

Abstract

Purpose: this paper determinates the current level of penetration of the dual-class system of capital company formation in the BRICS group.Methods: are based on the use of methods of analysis, systematization, generalization. A comparative and synthesis methods have been also used to identify trends and patterns in the introduction of multi-voting shares in the BRICS group.Results: the dual-class system of capital company formation in Russia is practically not studied. The article reveals that in Brazil and Russia, despite the discussion of the possibility of distributing multi-voting shares, the legislation does not imply the possibility of using the dual-class system. This issue has not yet been discussed in South Africa.It has been identified that the main reason for the legislative permission for using multi-voting shares is the need to develop companies in the high-tech sector. Another reason is the massive listing of foreign high-tech companies on American stock exchanges, due to the possibility of using the dual-class system. This predetermined the introduction of amendments to the legislation of India and China, according to which companies in the high-tech sector that have not yet passed an IPO can use differential voting rights.It has been receiving that the Indian market is the only one where shares with differentiated voting rights are placed on the stock exchange. At the moment, three companies that passed the IPO before the amendments to the legislation use differentiated voting rights, but not upwards, but on the contrary – downwards: “four shares – three votes”. This characteristic determines the trading of such stocks at a discount.Conclusions and Relevance: harmonization of opportunities for the use of financial instruments in the BRICS market can strengthen the economic potential of states. Allowing the usage of multi-voting shares improves the business environment for high-tech companies and reduces the need for company founders to look for IPO opportunities in jurisdictions where a dual-class capital formation system is allowed.