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Lawmakers to start talks to introduce dual-class shareholding for startups

2018.10.12 13:17:04 | 2018.10.12 13:25:55
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Kim Tae-nyeon

Kim Tae-nyeon

South Korea’s ruling Democratic Party is seeking to introduce a dual-class shareholding structure for startups to facilitate their funding from outside while ensuring management stability.

“The time is ripe for reviewing the introduction of premium voting rights for tech-driven startups because it can help lower the risk of ownership challenges when they raise money from the capital market,” said Democratic Party policy chief Kim Tae-nyeon during a parliamentary inspection meeting on Thursday.

Dual-class stock refers to a company that issues two share classes of stock, each with equal economic rights, but with unequal voting rights. The typical form is super voting stock that has some multiple over single vote stock, such as a 10-to-1 ratio. But Korea’s Commercial Code stipulates ‘one voting right for one share’ as a principle, where entrepreneurs are often exposed to risk of losing their management control especially when going public. Critics say the rule discourages the creation of new businesses and entrepreneurial activity in general.

In the U.S. dual-class shareholding is widely recognized. Alphabet, the parent of Google, issues Class A and B shares. Class B shares held by Google founders grant them 10 votes per share.

Kim said the premium voting will facilitate funding for startups as a ladder to their future growth and this is in line with the Moon Jae-in administration’s initiative to bring vitality to the creation of innovative startups.

The Democratic Party is set to start discussion with related government ministries to introduce the system.

By Kim Hyo-sung and Minu Kim

[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]

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