A group of 27 top executives and investors in Alibaba Group Holding Ltd (TICKER:BABA), including co-founder Jack Ma, can appoint another two directors to the company's board once it goes public, according to a U.S. regulatory filing on Friday.
The move would expand the Chinese e-commerce company's board to 11 members from nine and give Ma's group control over the majority of Alibaba's board after its initial public offering on the New York Stock Exchange later this year.
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In an updated prospectus filed with the U.S. Securities and Exchange Commission, Alibaba also provided a more detailed explanation of its controversial decision in 2011 to spin out its Alipay payments service.
Alibaba is expected to execute what could be the largest U.S. technology IPO in history. The company powers four-fifths of all online commerce conducted in China, the world's second-largest economy, and handled more transactions last year than Amazon.com Inc and eBay Inc combined.
But Alibaba's complex governance structure coupled with Ma's outside investments have raised questions about potential conflicts of interest and the ability for investors to have sway over Alibaba's strategy and direction.
Ma started Alibaba in his one-room apartment in 1999 and has since branched out into markets as diverse as e-payments and financial investment. He and 26 other executives and investors are part of a powerful group dubbed the "Alibaba Partnership."
The group already planned to designate four of the company's nine directors prior to its IPO. With the new disclosure, it will have the power to name six of the 11 board members.
Alibaba has said the interests of the Alibaba partnership may conflict with those of investors in the IPO.
"This governance structure and contractual arrangement will limit your ability to influence corporate matters, including any matters determined at the board level," Alibaba wrote.
Ma has an 8.9 percent stake in Alibaba. Other investors in Alibaba include SoftBank Corp and Yahoo Inc, which own 34.3 percent and 22.5 percent respectively.
In its updated IPO filing, Alibaba explained its decision to spin out Alipay, the PayPal-like affiliate established by Alibaba in 2004 that continues to provide the lion's share of payment services for the company's retail marketplaces.
Alibaba spun out Alipay to a group that includes Ma, who holds a 46 percent stake in Alipay through another company, Zhejiang Alibaba E-Commerce Co.
Alibaba said it did so to turn Alipay into a domestic entity in order to prevent delays in obtaining an operating license under newly issued Chinese regulations, according to the filing.
"This action enabled Alipay to obtain a payment business license in May 2011 without delay and without any detrimental impact to our China retail marketplaces or to Alipay," Alibaba said.
(Reporting by Deepa Seetharaman; Editing by Dan Grebler)