South Korea's National Assembly has passed legislation allowing the issuance of dual-class shares to founders of unlisted startups.
The Special Measures for Venture Business Development Act amendments, which allow unlisted ventures to issue dual-class shares with up to 10 voting rights per share, were passed on April 27.
The updated law aims to help high-growth venture companies attract investment and sustain growth without management instability.
Ministry of Small and Medium Enterprises and Startups (MSS) has been working on enacting the law, which will take effect six months from promulgation.
Under the revised Venture Business Act, dual-class shares can be issued to founders if their voting rights fall below 30% due to investment.
However, safeguards have been put in place, such as requiring a weighted special resolution with the approval of three-quarters of the outstanding shares at a general meeting of shareholders.
In addition, dual-class claims will have a maximum maturity of 10 years, reduced to a maximum of three years on the listing. They will be converted into ordinary shares at maturity.
Voting restrictions and reporting requirements have been introduced to prevent abuse of dual-class shares and ensure transparency.
Companies issuing dual-class shares must report material matters to the Ministry of SMEs and Start-ups and disclose the issuance details at their headquarters and branches.
The Ministry will publish the reported issues in the Official Gazette and make them available to the public.
In addition, penalties for violations, such as fines or imprisonment, have been set.
Minister Lee stressed the importance of the new legislation, citing the active use of dual-class shares in countries such as the United States, China, and India.
This development is a crucial step in creating an environment that supports the growth of high-growth venture companies with domestic capital rather than relying on countries with dual-class share systems, such as the United States.