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Changes in Major Regulations on Corporate Governance and Financial Structure of Venture Businesses and Unlisted Companies


The amendment to the Act on Special Measures for the Promotion of Venture Businesses (hereby referred to as the “Venture Business Act”) to allow multiple voting shares was promulgated on May 16 2023, and is scheduled to take effect on November 17, 2023. In addition, the amendment to the Enforcement Decree of the Act on External Audit of Stock Companies (the “External Audit Act”), which eases the burden on unlisted companies regarding external audit regulations, took effect on May 2, 2023.

The amended Venture Business Act aims to systematically stabilize management and increase flexibility in corporate governance of venture businesses by allowing multiple voting shares in response to the dilution of founders’ shares caused by large-scale investments in venture businesses. The amended Enforcement Decree of the External Audit Act aims to reduce the accounting burden placed on small to medium-sized enterprises, and to promote reporting of accounting fraud. Both amendments indicate a relaxation of regulations on corporate governance and the financial structure of venture businesses and unlisted companies.

1.   Amendment to the Venture Business Act to Allow Multiple Voting Shares

A venture business whose founding director owns less than 30% of the company’s total shares due to external investment may now issue shares with up to ten voting rights per share to the founder by a resolution of the general meeting of shareholders, subject to the provisions of the company’s articles of incorporation. In order to make amendments to the articles of incorporation and resolutions on the issuance of multiple voting shares, the affirmative vote of at least 3/4 of the total number of voting shares issued and outstanding is required.

Once issued, multiple voting shares are converted into common shares, if (i) the founder inherits or transfers his/her multiple voting shares, (ii) the founder loses his/her position as a director, or (iii) three years have passed since the listing date of the relevant venture business. In addition, a founder holding multiple voting shares may exercise only one vote per share for certain matters, such as the amendment of the articles of incorporation to change the term of multiple voting shares, approval of directors’ remuneration, reduction of directors’ liability to the company, appointment and dismissal of auditors, capital reduction, and dividend distribution.

2.   Amendment to the Enforcement Decree of the External Audit Act, Including Relaxing Requirements for Large Unlisted Companies

The key amendments to the Enforcement Decree of the External Audit Act are as outlined below. Among them, the amendment pertaining to an increase in the total asset threshold amounts required to qualify as (i) large unlisted stock companies, or (ii) companies required to operate internal accounting management systems, will be applicable from the fiscal year beginning on January 1, 2023:

  • (Increase in asset threshold amount to qualify as large unlisted stock companies) The threshold for total assets of large unlisted companies subject to external audit regulations, similar to those established for listed companies, such as the designation of auditors by the Securities and Futures Commission (the “SFC”), will be increased from KRW 100 billion or more to KRW 500 billion or more.

  • (Increase in asset threshold amount for exemption from internal accounting management system requirement) The threshold for total assets of companies exempt from operating internal accounting management systems will be increased from less than KRW 100 billion in total assets to less than KRW 500 billion.

  • (Easing of requirements for leniency applicants for accounting information-related violations) A leniency applicant for accounting information-related violations may be exempt from sanctions if he/she meets one or more of the following requirements: (i) he/she did not play a leading role in the violation subject to reporting and did not coerce other related parties; (ii) the reporting details were not in SFC’s possession already; and (iii) he/she cooperates until the completion of the investigation (previously, a leniency applicant had to meet all three requirements to be considered for exemption from sanctions).

  • (Allowing anonymous reporting of accounting information-related violations) The person who reports the violation will be able to submit a report to the SFC without disclosing his/her personal information.

The amendment to allow the issuance of multiple voting shares under the amended Venture Business Act is expected to help venture businesses attract external investment, while the amended Enforcement Decree of the External Audit Act will reduce the scope of companies subject to designation of auditors and the regulation on the operation of internal accounting control systems. These amendments will enable a flexible management of corporate governance and financial structures of venture businesses and unlisted companies, and may have a significant impact on future business practices, such as mergers and acquisitions of unlisted companies including venture businesses, equity investment (including pre-IPO investment) and listings.


[Korean Version]