Core Viewpoint - The reform of the preferred stock system in China is crucial for enhancing financing capabilities, particularly for non-public companies, amidst the accelerated pace of capital market reforms and the optimization of the business environment [1][9]. Group 1: Introduction and Current Challenges - Currently, only listed companies can legally issue preferred stocks, which poses challenges for many target companies that are structured as limited liability companies or do not meet the scale of public companies [2]. - The activation of the preferred stock system can promote the development of "patient capital" and alleviate legal risks associated with equity buyback agreements [2][3]. Group 2: Relationship Between Preferred Stocks and Buyback Agreements - Preferred stocks are designed for priority profit distribution and can be tailored to meet diverse investor needs, showcasing significant financing functions [3]. - Buyback agreements, which allow for the repurchase of shares if certain conditions are not met, are legally valid but face strict regulatory limitations [4]. - Both preferred stocks and buyback agreements share characteristics of blending equity and debt, suggesting that preferred stocks could absorb existing contractual arrangements, thus enhancing financing for the private economy [4][5]. Group 3: Practical Challenges for Preferred Stocks in Non-Public Companies - Courts often deny the issuance of preferred stocks by target companies based on eligibility issues, leading to contract invalidation [5]. - Super dividend rights clauses are frequently deemed problematic by courts due to potential harm to the company and its creditors, while priority liquidation rights are generally accepted as long as they do not disadvantage external parties [6]. Group 4: Institutional Activation of Preferred Stocks - Expanding the issuance of preferred stocks to non-public companies could diversify financing channels and enhance corporate governance structures [7]. - Incorporating buyback agreements into the preferred stock system is essential to align with market demands and regulatory considerations [8]. - The design of procedures for converting creditor rights into preferred stock should follow the revised Company Law, facilitating market-oriented debt-to-equity conversions [8]. Group 5: Conclusion and Outlook - The institutional innovation of preferred stocks for non-public companies represents a convergence of capital market reform and business environment optimization strategies [9]. - This innovation aims to provide more flexible financing options and promote a diversified capital market structure, necessitating a close integration with various financing arrangements [9].