Ruling Party's Push for Differential Voting Rights... What Are the Key Issues?

Venture Industry Unlisted Limited... 3-Year Grace Period "No Practical Benefit"
Civic Groups "Concerns Over Chaebol Succession Abuse"
National Assembly to Submit on 23rd... Aiming for Bill Passage in March

[Asia Economy Reporter Koo Chae-eun] Dual-class voting rights are a system designed to allow founders or managers to operate a company without worrying about losing control. However, the bill being promoted by the political sphere (Partial Amendment to the Special Measures for the Promotion of Venture Businesses Act) limits this system to unlisted companies and sets the period to within 10 years, leading to criticism that it is only a "half measure."

Opposition from civic groups is also considerable. The main criticisms are that it directly violates shareholder equality and makes mergers and acquisitions (M&A) more difficult. With both proponents and opponents holding strong positions, the bill review process scheduled for March is expected to be challenging.

The bill, which the Democratic Party submitted to the plenary session on the 23rd and aims to be passed within March, was a pledge in the Democratic Party’s 21st general election platform, so calls for urgent introduction are strong. The government is also supporting the bill’s passage. On the 16th, Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, said at the National Assembly, "I hope the National Assembly will discuss and promptly legislate so that unicorn companies can utilize the domestic stock market."

However, the venture industry, which would benefit from the bill, criticizes the government proposal as a "hollow promise." The main content of the bill is to grant voting rights up to 10 votes per share only to unlisted companies to foster venture businesses, with the period limited to within 10 years. After listing, to prevent abuse, there is a three-year grace period during which the shares convert to common stock. Among approximately 3.6 million small and medium enterprises in Korea, only about 1% (39,000 companies) are unlisted companies certified as ventures by the government, so the number of beneficiaries is expected to be small. For this reason, the industry argues that instead of including all regulations on dual-class voting rights in the law, the scope of eligible companies should be expanded and left to corporate autonomy. A venture industry official pointed out, "Even though the duration of multiple voting rights shares is set at 10 years, setting a separate expiration period of three years after listing is excessive regulation."

The opposition arguments from civic groups such as the Citizens' Coalition for Economic Justice focus on concerns that it could be abused for chaebol succession. The concern is that chaebol heirs could found venture companies, issue multiple voting rights shares in unlisted venture companies, and then carry out succession by exchanging shares of holding companies or representative companies held by the head of the group for common shares of the venture companies.

Regarding this, Yang Kyung-sook, a Democratic Party lawmaker who proposed the bill, told this publication in a phone interview, "This law is to protect founders with technology and know-how only until the company goes public," adding, "It is not aligned with concerns about chaebol inheritance." Song Gap-seok, another Democratic Party lawmaker, also said in a phone interview, "(Concerns about abuse for succession) can be blocked by other laws, so the possibility of abuse through this government bill is quite low."

There are also calls for institutional improvements while reviewing the bill centered on the government proposal. Kim Byung-wook, a Democratic Party lawmaker and ruling party whip on the National Assembly’s Political Affairs Committee, said at the committee’s plenary session on the 17th, "While positively considering dual-class voting rights, the issue of violating shareholder rights by directly contradicting one share, one vote and making M&A difficult is something that needs to be addressed."

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