Korea mulls introduction of multiple voting rights for startups

South Korea is mulling whether to introduce multiple voting rights for shareholders as a way to help local startups attract large-scale investment and maintain stable management, according to public officials and politicians on Tuesday.

Vice Minister of SMEs and Startups Kang Sung-cheon said the government was working on ways to legalize differential voting rights, which are popular among countries with many unicorn startups. A unicorn startup refers to a fledgling company valued at over $1 billion.

Currently, the top four countries with the greatest number of unicorn startups -- the US, China, India and the UK -- all allow multiple voting rights, which make it possible for companies to attract investment without diluting the founders’ shares and risking their role in management. For instance, the co-founders of Alphabet, Google’s parent company, hold 51.5 percent of the total voting rights even though they only own 11.4 percent of the total shares.

The remarks came at a discussion session held to promote the country’s startup ecosystem. Lawmakers from the Democratic Party’s regulatory innovation team attended the meeting along with investors, professors, lawyers and industry experts from startups.

According to the ministry, the government plans to limit the issuance of differential voting right shares only to the incumbent founders of unlisted companies in cases when the founder’s stake can be expected to fall below 30 percent of the total shares, or when the founder is projected to lose his or her largest-shareholder status due to large-scale investments.

Large-scale investments, in this case, refer to investments of more than 10 billion won ($8.8 million), and the previous investment must have been worth more than 5 billion won for multiple voting rights to be considered, the draft legislation showed.

Startups would get 10 votes per share at the most, for up to 10 years, and could only issue differential voting right shares once.

“The government is pushing for regulatory innovation by instituting policies like the Regulatory Sandbox and other measures, but for the industry, it’s somewhat lacking,” said Korea Venture Business Association President Kang Sam-kwon, adding that “regulatory innovation is a must to realize the second venture boom.”

In addition to multiple voting rights, industry experts on Tuesday asked the government to consider various other investment methods widely used in Silicon Valley, including convertible notes, venture debt and more generous tax benefits for angel investors. (gypark@heraldcorp.com)