The Korea Venture Business Association called for reasonable safeguards to ensure the sustainable growth and survival of the venture ecosystem regarding the Commercial Act amendment bill that mandates treasury stock cancellation.
The association released a position statement on the 25th, stating, "We deeply sympathize with the legislative intent of enhancing shareholder value and strengthening corporate transparency," and added, "We earnestly request swift supplementary legislation through revision of the Special Act on Fostering Venture Businesses."
The association emphasized that treasury stock for venture companies differs from that of large conglomerates. While large corporations primarily use treasury stock for stock price management and shareholder returns, venture companies utilize it for essential operational purposes.
Venture companies lack viable alternatives to treasury stock as a means of stabilizing management control, given their difficulty in securing stable cash flows and limited fundraising options. Their shareholder composition is also complex, comprising founders, venture capitalists, and angel investors. Equity stakes are continuously restructured through repeated investment rounds, with frequent founder departures and early investor exit demands. Mandatory cancellation could cause equity to flow externally during this process, heightening management uncertainty.
Venture companies' limited cash compensation capacity is also a key concern, as they rely on stock-based compensation such as stock options and restricted stock units (RSUs) to compete with large corporations for talent. Treasury stock-based stock options enable swift compensation without new share issuance while preventing dilution of existing shareholders' stakes. In this environment, treasury stock functions not merely as a financial asset but as a strategic tool buffering uncertainties during the growth process.
While large corporations possess relatively diverse means of stabilizing management control—including circular shareholding structures, cross-holdings among affiliates, and friendly stakes—venture companies face the burden of founders' stakes often being diluted to 20-30% through fundraising rounds. Uniformly mandating treasury stock cancellation when such stock is practically the only management defense mechanism could seriously threaten venture founders' management stability.
The association stated, "It is necessary to establish exemption provisions from mandatory treasury stock cancellation for venture companies so that the venture ecosystem can maintain its vitality without becoming rigid."