Unlisted Ventures Allowed 'Multiple Voting Rights' to Defend Management Control

10 Voting Rights per Share, Maximum 10-Year Grace Period... Ministry of SMEs and Startups Amendment Approved at Cabinet Meeting

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If the founder of an unlisted venture company loses majority shareholder status due to large-scale investment attraction, they will be able to issue 'multiple voting rights shares.' This is evaluated as establishing an institutional foundation that allows innovative venture companies to grow into unicorn companies by receiving large-scale investments without concerns about equity dilution.

The Ministry of SMEs and Startups announced that the amendment to the "Special Measures for the Promotion of Venture Businesses Act" (hereinafter referred to as the Venture Business Act) to introduce multiple voting rights shares for unlisted venture companies was approved at the Cabinet meeting on the 22nd. Multiple voting rights shares (multiple voting rights) are shares with multiple voting rights, which are currently not allowed under domestic law. Because of this, founders and venture entrepreneurs have been reluctant to attract investment for corporate growth due to concerns about losing management rights.

In October, at the 18th Emergency Economic Central Countermeasures Headquarters meeting, the Ministry of SMEs and Startups announced plans to amend the Venture Business Act as a special case of the Commercial Act to introduce multiple voting rights. Subsequently, the government finalized the proposal after public notice, consultations with related ministries, regulatory reviews, and gathering opinions from stakeholders such as venture and startup companies.

◆Limit of 10 voting rights per share = First, multiple voting rights will be issued when the founder of an unlisted venture company loses majority shareholder status due to large-scale investment attraction. The limit of voting rights per share is set at 10, with a duration of up to 10 years. The articles of incorporation can be amended to issue these shares with the consent of three-quarters of the total shares issued at the general shareholders' meeting.

To prevent abuse, shares will be converted to common stock in cases of inheritance, transfer, or inclusion in a publicly disclosed business group. When the venture company goes public, the shares will be converted to common stock, but a three-year grace period will be granted so that the founder can focus on management for a certain period after listing. To protect minority shareholders and creditors, the exercise of multiple voting rights will be limited to one vote per share for major matters such as the appointment and dismissal of auditors and audit committee members, dividend distribution, capital reduction, and resolution of dissolution.

To ensure transparency, companies issuing multiple voting rights must report to the Ministry of SMEs and Startups. The issuance details will be publicly disclosed and announced in the official gazette. Strict management will be enforced, including fines for failure to report, false reporting, or violations of disclosure. Also, considering the purpose of introducing this system to promote venture company growth, multiple voting rights will remain valid until the expiration of the exercise period even if the company loses its venture status.

◆Growth of the domestic startup and venture industry = The industry expects that the introduction of multiple voting rights will enable founders to exercise entrepreneurship from a long-term perspective based on stable management rights, providing an opportunity for venture companies to receive large-scale investments and grow into unicorn companies. It is also expected to contribute to the expansion of large-scale private investments in startups, facilitating scale-up and exit activities for many startups. The creation of a virtuous cycle ecosystem from startup to growth, unicorn, and exit (IPO, initial public offering) in the domestic venture industry is also expected to accelerate.

A Ministry of SMEs and Startups official explained, "We plan to submit the amendment to the Venture Business Act to the National Assembly within this year and actively work for its passage. At the same time, we will prepare subordinate legislation and other measures necessary for the implementation of multiple voting rights without any setbacks."

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