Special Shares with Multiples of Voting Rights in Upcoming Legislation
The Ministry of SMEs and Startups (MSS) has set detailed requirements for multiple voting rights to a venture startup that allows its founder to retain management control even if the venture startup receives investment from the outside. The ministry announced on Aug. 21 that it has issued a legislative preview of some amendments to the Enforcement Decree of the Act on Special Measures to Foster Venture Startups, which contains the details of retaining multiple voting rights for a venture startup. The legislative preview will run for 42 days until Oct. 2.
Multiple voting rights to a venture startup grants up to 10 voting rights for each share of an unlisted company founder’s stocks. The multiple voting rights system aims to ensure that venture startup founders do not lose control over their venture startups even if they receive investment from the outside and their stake drops below 50 percent. The National Assembly passed the amendment in May. A detailed enforcement decree was prepared and disclosed on Aug. 21 ahead of its effectuation in November.
According to the decree, a venture startup that can issue shares with multiple voting rights must be a company that received more than 10 billion won in investment since its inception. However, the last investment amount must be at least 5 billion won to issue shares with multiple voting rights. According to the MSS, about 300 startups were subject to the system in 2022.
Companies that issue shares with multiple voting rights must notify shareholders of their issuance and report the status of the issuance to the MSS within a month. If a violation of the Act on Special Measures to Foster Venture Startups is found with respect to the issuance of shares with multiple voting rights, the MSS can exclusively look into the case and impose fines on those responsible for that.