이 기사는 2019년 12월 30일 08:00 thebell 에 표출된 기사입니다.

South Korean government has decided to allow local startups to issue dual-class shares. But many in the country are criticizing the policy for defying the one-share-one-vote principle. Doubt is also cast on the effectiveness of the policy.

The South Korean Ministry of SMEs and Startups announced last Thursday various policies to address 10 key challenges in 2020. Most notable among them is that unlisted venture businesses are allowed to adopt a dual-class voting structure.

In a dual class stock structure, more than two classes of shares can be issued: One share class offered to the general public has limited voting rights, while the other share class available to founders and executives has more voting rights. In South Korea, two members of the National Assembly separately submitted a bill for amending the Act on Special Measures for the Promotion of Venture Businesses to allow unlisted startups to issue dual-class shares, with the aim of helping them grow into unicorns.

However, there are voices criticizing the policy for defying the one-share-one-vote principle, which is guaranteed by the Commercial Act. The government plans to make an exception by introducing special laws, but the criticism still exists.

There is also a concern that introducing dual-class shares could enable founders and executives to overuse their voting power, with little protections for minority shareholders such as venture capitals.

Some also question the effectiveness of the policy, as the government’s plans currently on the table require venture businesses seeking to issue dual-class shares to receive consent from all existing shareholders. However, it is uncertain whether existing shareholders would willingly agree to such an unequal voting structure.

Further discussion is needed about how long dual-class shares structures should be effective. Allowing venture companies to continue to adopt dual-class share structures after going public would in effect guarantee founders’ control indefinitely. One way to prevent this is to require startups to convert the class of shares with superior voting rights into common stocks after an initial public offering (IPO). This, however, could lead startups to postpone their IPO plans.

“The purpose of introducing dual-class share structures is to strengthen venture companies’ management rights, but at the same time, there are problems such as the negative impact on shareholder fairness,” an industry insider said. “Investors like venture capitals could disagree with a dual-class voting structure because this could reduce their stake proportion.”

(By reporter Shin Sang-yoon)