Venture Business Sector Expresses Concerns Over Certain Government Economic Legislation

The small and venture business sectors have expressed concerns that some parts of the amendment to the Commercial Act submitted by the government to the National Assembly on August 31 could dampen corporate investment enthusiasm and negatively impact job creation and economic recovery.

On the 13th, the Korea Venture Business Association issued a statement on the government's economic legislative proposals, arguing that the introduction of the multiple derivative lawsuit system raises concerns about excessive interference by parent company shareholders in subsidiary management, and that detailed scrutiny is needed during the National Assembly's deliberation process, including restrictions on foreign speculative capital and strengthening of litigation requirements. Limiting the voting rights of major shareholders to 3% when appointing audit committee members is seen as severely restricting the company's defensive rights, potentially exposing management rights to threats from minority foreign speculative capital.

The industry perceives that if the class action system is introduced, small and venture companies lacking legal litigation capabilities could suffer enormous damage and even face existential threats. The industry stated, "if the class action system is introduced, putting aside the rampant black consumers and legal brokers, companies will face enormous litigation costs and management risks, which could ultimately lead to bankruptcy," and emphasized, "a more thorough review of the ripple effects and side effects on companies is necessary before introducing the system, and sufficient consultation with companies and related experts should be conducted to preemptively address issues." They particularly stressed the need for institutional measures to prevent many good small and venture companies from suffering due to excessive litigation and legal costs, and argued that it is preferable to selectively introduce the system in necessary areas through individual laws as is currently done.

Additionally, the statement pointed out that taxation on excess retained earnings also suppresses investment activities for research and development (R&D) and new business ventures by small and venture companies, infringing on corporate autonomy. Corporations are granted legal personality with rights and obligations, and retained earnings, which serve as nutrients for growth, should be reinvested for corporate development; regulating this infringes on the corporation's autonomy to grow. The industry noted that just because retained earnings occur does not mean the company holds that amount in cash, and paying an additional excess retained earnings tax on top of the corporate income tax levied annually on corporate income is excessive.

The small and venture business sectors stated, "Now is a critical time to overcome the COVID-19 crisis and activate private investment including by companies," and added, "We hope that during the National Assembly's deliberations on recent government economic legislative proposals, both ruling and opposition parties will sufficiently gather corporate opinions and proceed with legislation."

This content was produced with the assistance of AI translation services.