Partnership and choice of control arrangement for startup teams: a case study of Alibaba Group

ZHENG Zhigang 1 ZOU Yu1 CUI Li2

(1.School of Finance, Renmin University of China 100872)
(2.Carey Business School, Johns Hopkins University)

【Abstract】With the rapid expansion of emerging industries, startup teams like Ali are faced with challenges from information asymmetry and incomplete contracts. Based on the case study on Ali, we find that Ali has transformed the short-term employment contract to long-term partnership agreement with the partnership system, sharing both information and risks, as well as saving transaction cost. Alibaba’s partnership not only sends investors signal on unique business model, but also becomes an important arrangement to incent human capital investment under incomplete contracts. In the meanwhile, the partnership system makes Jack Ma’s startup team “constant chairman of the board” as well as “head of the board,” achieving “building management team beforehand” and “prioritizing company management,” as well as saving money. However, unlike the dual-class stock structure, the lack of withdrawal mechanism from B shares to A shares as well as the irreplaceability of the founder may bring uncertainty to the executing of the partnership structure in the near future.

【Keywords】 partnership; dual-class stocks; state-contingent control; building management team beforehand; prioritizing corporate governance mechanism;


【Funds】 General project of National Natural Science (71272159); General project of National Natural Science Foundation (71472177).

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(Translated by ZHONG Yehong)


    [1]. ① VIE refers to the fact that the overseas listed entity is separated from the operational entity within the territory. The overseas listed entity controls the operational entity within the territory by means of the protocol which makes the operational entity become the variable interest entity of the listed entity. This kind of arrangement can transfer the interests of the operational entity within the territory to the overseas listed entity through controlling the protocol. It makes the shareholders (namely the overseas investors) of the overseas listed entity actually enjoy the interests produced by the operation of the operational entity within the territory. On the one hand, the consolidated statement of the profit and assets is reported to the overseas investors. On the other hand, it faces the law and the supervision with the identity of the operational entity within the territory. [^Back]

    [2]. ① According to the report of Sina Tech (, in 2000, SoftBank invested USD 20 million in Ali when Ali was still a small e-commerce company and gained 34.4% of Ali’s shares. However, after 14 years, when Ali was listed in the NYSE, the market value of shares held by SoftBank of Masayoshi Son reached USD 58 billion. Masayoshi Son became Japan's richest man overnight. The report also mentioned that the god of stocks, Buffet has started investment since 14 years old. By the time he was 83, after nearly 70 years, his personal wealth exceeded USD 58 billion. However, Masayoshi Son has gained USD 58 billion within 14 years in Ali. [^Back]


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This Article


CN: 11-3536/F

Vol , No. 10, Pages 126-143

October 2016


Article Outline


  • 1 Introduction
  • 2 Theoretical hypothesis
  • 3 Case study: Alibaba’s partnership
  • 4 Hypothesis verification by case study on Alibaba’s Partnership
  • 5 Conclusions and policy implications
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