The proposed amendments to the Act on Special Measures for the Promotion of Venture Businesses (the “Venture Business Act”) were passed at the plenary session of the National Assembly on April 27, 2023, and will be promulgated and enforced (“Proposed Amendments”). The purpose of the Proposed Amendments is to systematically support the stable management of venture businesses by permitting the issuance of multiple voting shares with multiple voting rights per share to founders who meet the requirements stipulated in the Venture Business Act in order to allow them to cope with the dilution of founders’ shares resulting from the attraction of large-scale investments. The key provisions of the Proposed Amendments are as follows:
1. Issuing Multiple Voting Shares to Founders of Venture Business
The Korean Commercial Code (the “KCC”) enshrines the principle of one-voting right per share, and prohibits differentiating the number of voting rights per share except for non-voting shares. The Proposed Amendments introduce an exception to such principle for a venture business that receives an investment above a threshold amount from a non-specially related party if the director, who is also the founder of the business, ends up owning less than 30% of the shares in the venture business as a result of the investment. In that case, the venture business may issue multiple voting shares to the founder by a resolution of the general meeting of shareholders in accordance with the articles of incorporation.
The issuance of multiple voting shares requires a resolution of the general meeting of shareholders adopted by an affirmative vote of at least 3/4 of the total number of issued and outstanding voting shares, and up to ten voting rights can be attached to such voting shares as determined by the articles of incorporation.
If a venture business has issued multiple voting shares or made any material change to such shares, it must submit a report to the Minister of SMEs and Startups, and keep and disclose the details of the issuance to its head office and branches.
2. Conversion of Multiple Voting Shares Into Common Shares and Restriction on Voting Rights
If (i) a founder inherits or transfers multiple voting shares, (ii) loses his/her position as a director, or (iii) three years have passed since the day the venture business was listed, the founder’s multiple voting shares are converted into common shares. In addition, even a founder holding multiple voting shares may exercise only one vote per share when casting a vote to approve or disapprove a change in the terms of multiple voting shares, directors remuneration, reduction of director liability, appointment and dismissal of statutory auditors, capital reduction, or distribution of dividends, as is the case for common shares.
The Proposed Amendments are expected to significantly impact future practices such as mergers and acquisitions, equity investments (including pre-IPO investments) and the listing of venture businesses. Moreover, given the active discussions on introducing multiple voting shares as a key means to defend management control of a company in Korea along with the Poison Pill, the Proposed Amendments are of great significance in terms of the reinforcing the overall legal system to protect management control and regulations on governance structure.
