[The Editors' Verdict] Challenges After the Implementation of Multiple Voting Rights

Starting from the 17th, a multiple voting rights stock system for unlisted venture companies will be implemented. Multiple voting rights allow founders of unlisted ventures and startups to issue shares with 2 to a maximum of 10 voting rights per share. Both ruling and opposition parties have pushed for legal amendments on multiple voting rights, but the bills have repeatedly failed to pass the plenary session. The opposition is due to concerns that this system undermines the principle of one share, one vote, violates the protection of minority shareholders, and helps large corporations with management succession. The Ministry of SMEs and Startups proposed the bill in December 2020 during the Moon Jae-in administration. After more than two years of delays, it passed the plenary session last April. Amid various concerns, during the bill review process, it was decided that matters such as the appointment and dismissal of auditors, determination of directors' remuneration, and dividends would only exercise one vote per share, the same as common stock.

Timing is crucial for laws and systems. If the ruling and opposition parties had reached an agreement and implemented the system a little earlier, its effectiveness would have been doubled. Among the 38 OECD countries, 17 countries including the United States, the United Kingdom, and France have implemented multiple voting rights systems. China also allowed multiple voting rights in January 2019 after representative IT companies such as Baidu in 2005, Alibaba in 2014, and JD.com listed in the U.S. We are four years behind China. We hope that this opportunity will lead the government and the National Assembly to ease regulations on new industries. Among the top 100 unicorn companies, 17 are identified as unable to operate or only able to operate with restrictions domestically due to regulations (Korea Economic Association). Among the global top 100 climate tech startups, 34 cannot operate domestically at all due to current regulations (Samjong KPMG).

The enforcement decree prepared by the government also needs improvement. To issue multiple voting rights shares, a company must have received investments of over 10 billion KRW after founding, with the last investment being at least 5 billion KRW. Until the last investment, the founder must continuously hold at least 30% of the voting rights. Considering the current economic situation and investment environment, this threshold is high.

The investment process for startups at each growth stage generally proceeds in the order of "seed → angel → early-stage investment: Series A·B → late-stage investment: Series C and beyond." As investments are received at each stage, the number of investors inevitably increases, making it difficult to obtain approval from more than three-quarters of shareholders of the total issued shares. The issuance target is also limited to founders. Co-founders who did not participate as incorporators are excluded. It is worth considering allowing multiple voting rights to investors or managers who can contribute more to the company's vision and growth than the founders in the future.

Companies must have a sense of responsibility. Related organizations and companies have said that the multiple voting rights system is an essential law to enter the global market and a stepping stone to challenge global ventures through large-scale investment attraction without threatening management rights. The key to venture and startup growth lies in entrepreneurship, not laws and systems. The absence of multiple voting rights has not prevented companies from growing into unicorns. According to the Ministry of SMEs and Startups, Korea has 22 unicorn companies.

The multiple voting rights system is an imperfect but meaningful outcome achieved through efforts by the government and industry and discussions in the National Assembly. The Ministry of SMEs and Startups, the competent authority, has collected opinions and prepared for the system's implementation over the past six months through research projects, legislative notices, and a meeting on the 13th. They plan to supplement necessary parts during the implementation process. The Ministry of SMEs and Startups now has much work to do.

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