[Dual-Class Shares Implementation] ② "High Entry Barriers" vs "Investor Losses"... Need for Supplementary Measures

Complaints Arise Over Difficulty Meeting Issuance Requirements Including 10 Billion Won Cumulative Investment
Venture Capitalists Expected to Oppose Structures That Reduce Voting Rights
Calls for Alternatives Such as Introducing Cumulative Voting System and Mandatory Audit Committee Installation

After more than three years of discussions, the multiple voting rights system has been officially implemented. However, there are growing calls to expedite supplementary measures to enhance the system's effectiveness and reduce side effects.

As this is the first time multiple voting rights are introduced domestically, various safeguards were included in the amendment to minimize potential side effects and concerns. However, there are criticisms that the "entry barriers" are excessively high, which may result in few companies issuing voting rights. In a survey released the previous day by the Korea Venture Business Association, more than half of the respondent companies, 52.4%, answered that they have "no concrete plans" regarding the timing of adoption. When asked about anticipated difficulties in issuance, responses were ranked as follows: "meeting issuance requirements" (31.1%), "consent of all shareholders" (29.4%), "payment for shares" (18.9%), and "conversion to common stock" (10.3%).

At a meeting hosted by the Ministry of SMEs and Startups on the 13th, a representative from a company expressed, "The requirements for issuing multiple voting rights are excessively stringent." According to the enforcement decree, a venture company must have a cumulative investment amount of at least 10 billion KRW to issue multiple voting rights shares. At the same time, the last investment received must be at least 5 billion KRW. He also mentioned, "It is burdensome that the founder must continuously hold more than 30% of voting rights until the last investment is received." The government plans to strengthen promotion of the system within the industry and improve it after initially stabilizing the system.

There is also a forecast that venture capital investors may not want a structure where they lose voting rights. Existing shareholders who have made investments might raise complaints, or early investors who are not considering immediate listing might oppose multiple voting rights. Regarding this, Yoon Geon-su, chairman of the Korea Venture Capital Association and CEO of DSC Investment, said, "Regardless of who holds how much equity, differences must be reconciled, so changes in voting rights under the system are not significantly important," adding, "As investors, they cannot make unreasonable demands on the venture company CEO just because 'I have a large share,' and ultimately, they negotiate together to decide the company's direction."

Meanwhile, there are concerns about the system's side effects, with some saying it "could give excessive benefits to founders." A representative from an investment banking (IB) industry said, "The implementation of multiple voting rights could lead to side effects such as 'overhang' (potential large-scale sell-off)," explaining, "If founders can exercise multiple votes, they might take the stance of 'the rest can be sold.'"

Professor Lee Han-jun of Chungnam National University Law School recently stated in his paper "The Necessity and Implementation Methods of the Multiple Voting Rights System" that "appropriate governance checks are necessary for controlling shareholders who secure stronger control through the issuance of multiple voting rights shares," suggesting alternatives such as the introduction of cumulative voting and mandatory establishment of audit committees. He also noted, "There is no separate limit on the proportion of voting rights that multiple voting rights shares can occupy within the total voting rights," adding, "To protect minority shareholders to a minimum extent, it may be necessary for a certain proportion of shares or voting rights to be secured by general shareholders rather than holders of multiple voting rights shares."

At the same time, Professor Lee said, "This is an important opportunity to empirically verify the usefulness of the multiple voting rights system beyond vague fears," and added, "It appears to be fundamentally welcomed not only by founders but also by investors such as venture capitalists, which is very encouraging."