"Urgent Need to Introduce Multiple Voting Rights During Investment Winter... Will It Pass the Legislation and Judiciary Committee?"

"If we take investment, the company might be taken over due to dilution of the major shareholder's stake, but if we don't, it will be difficult to pay employees' salaries, making it hard to survive for long."

An executive at the C-level (Chief Officer in charge of each field) of a domestic education sector startup said that their company is currently in a dilemma. The investment funds previously received are almost depleted, and they need to attract additional investment. However, during past investment rounds, they have already handed over a large portion of shares to investors. If the founders' shares decrease any further, it would reach a level that threatens management control, leaving them stuck. He appealed, "The investment environment is worsening, and without the protective measure of the Multiple Voting Rights System, many venture companies will stop growing. I hope the National Assembly understands this serious situation."

The Multiple Voting Rights System is a system that allows founders to exercise two or more voting rights per one share they hold. It is a defensive measure to enable founders to operate their companies stably without threats to management control during investment attraction. Discussions on introducing this system have been ongoing in the venture and startup sectors for over 15 years. In December 2020, the Ministry of SMEs and Startups submitted a revision bill to the National Assembly to introduce the Multiple Voting Rights System as part of the "Special Measures for the Promotion of Venture Businesses Act" (Venture Business Act). However, it has yet to pass the Legislation and Judiciary Committee due to opposition from some lawmakers.

There is little disagreement on the introduction of the Multiple Voting Rights System itself, as both ruling and opposition lawmakers have actively proposed bills. It was the Democratic Party's "No. 2 pledge" during the 2020 general election when they held the majority. Also, the introduction of the Multiple Voting Rights System is one of the policy tasks of the Yoon Suk-yeol administration. Therefore, most members of the Legislation and Judiciary Committee currently hold a positive stance toward its introduction. However, Democratic Party lawmaker Park Ju-min and Transition Era Party lawmaker Cho Jung-hoon oppose its introduction.

Lawmakers Park and Cho believe that the Multiple Voting Rights System undermines the fundamental principle of "one share, one vote" in the Commercial Act and infringes on shareholder interests. According to the bill submitted by the Ministry of SMEs and Startups, the number of voting rights per share can be up to 10. Lawmaker Cho said, "It is like making an exception to the one person, one vote principle in democracy," adding, "There is a possibility of unconstitutionality and conflicts with other laws such as the Commercial Act, so further discussion is needed."

However, the venture industry counters that these statements show a lack of proper understanding of the purpose and content of the Multiple Voting Rights System introduction. They argue that sufficient protective measures have already been established during the introduction process. Yoo Jeong-hee, Head of Innovation Policy at the Korea Venture Business Association, said, "Many special laws, including the Multiple Voting Rights System, propose exceptions to existing laws because the social and economic benefits of introducing these systems are significant." She explained that even with the introduction of the Multiple Voting Rights System, important matters such as appointment and dismissal of auditors, determination of directors' remuneration, and dividends are exercised with one vote per share, the same as common stock. Another venture industry official questioned, "The Commercial Act allows the issuance of preferred shares without voting rights; does that mean preferred shares also violate the one share, one vote principle?"

There is also an opinion that the issuance requirements are strict compared to other countries that have introduced the Multiple Voting Rights System, making abuse such as chaebol succession less likely. Currently, 17 out of 38 OECD member countries, including the United States, the United Kingdom, France, and Japan, have implemented the Multiple Voting Rights System. A Ministry of SMEs and Startups official explained, "In Korea, when the founder's stake is below 30%, multiple voting rights can only be issued with the consent of 75% of shareholders," adding, "Also, if a company with multiple voting rights is included in a large business group, the rights are immediately converted back to common shares. Various defensive measures were prepared through a long public discussion process and included in the amendment bill."

However, there is also a cautious view that the system should be introduced after comprehensively reviewing the current corporate governance-related systems and financial regulations in the Commercial Act, not just under the Venture Special Act. The checks and balances on executives granted multiple voting rights are still weak. Hwang Hyun-young, a research fellow at the Korea Capital Market Institute, said, "If voting rights increase tenfold, decision-making influence and control also increase tenfold," adding, "Unlisted companies with capital under 1 billion KRW are not obligated to appoint auditors, form boards of directors, or appoint outside directors, so combined with the Multiple Voting Rights System, there would be no proper means of checks and balances."

There is also an opinion that instead of holding onto the bill, it should be promptly passed to the plenary session of the National Assembly. Kwon Chil-seung, a Democratic Party lawmaker and former Minister of SMEs and Startups at the end of the Moon Jae-in administration, said, "Since the bill has already been sufficiently reviewed by the relevant standing committee, it would be reasonable to gather consensus in the plenary session." A Ministry of SMEs and Startups official said, "Since the plenary sessions of the National Assembly are scheduled for the 23rd and 30th of this month, the full meeting of the Legislation and Judiciary Committee will likely be convened between those dates," adding, "Many venture companies are in the 'death valley' (a slump experienced by early-stage startups), so we hope the bill will be passed quickly."

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