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What Made Coupang Choose the NYSE? A Look at Korea’s Dual-Class Share System Debate

2021.03.02

On February 12, 2021, Coupang, a Korean e-commerce giant, filed its Form S-1 registration statement with the United States Securities Exchange Commission to list its stock on the New York Stock Exchange (the “NYSE”).  The market estimates Coupang’s value at around USD 30-50 billion, which is expected to be the largest public offering on the US stock market by a foreign company, since Alibaba’s initial public offering on the NYSE in 2014. 
 
Coupang’s announcement has ignited Korean media scrutiny on the lack of a “dual-class share system” in Korea, identifying this as one of the main reasons why Coupang chose to list on the NYSE over the Korea Exchange (the “KRX”).  There are likely a host of reasons for why Coupang decided to list on the NYSE instead of the KRX – the most notable being that Coupang LLC, the company going public in the US, is itself, a US company (albeit the 100% parent of the Korean company, Coupang Corp.).  While we do not pretend to know the reasons for Coupang’s listing decision, it is true that there is currently no dual-class share system available under Korean law.  The news also sheds light on the longstanding debate that has ensued regarding implementation of a dual-class share system in Korea and its implications on corporate governance. 
 
The phrase, “dual-class share system”, refers to a company’s share structure having two or more classes of shares with different voting rights for each class.  Generally speaking, if a company only has a single class of shares with equal voting rights, the act of issuing a large number of shares through an IPO could result in the corporate founder’s loss off majority voting rights and control over the company, since the corporate founder’s shareholding percentage and corresponding voting rights would become diluted. 
 
Coupang disclosed in its S-1 filing statement that it will utilize the dual-class share system by having two classes of common stock – Class A common stock, with one vote per share, and Class B common stock, with 29 votes per share.  Coupang additionally disclosed that all outstanding shares of Class B common stock will be held only by its founder, Mr. Bom Suk Kim.  Effectively, this means that by using the dual-class share system, Mr. Kim will be able to retain his majority voting rights, even with a small shareholdings percentage. 
 
Unlike the US, Korea does not have a dual-class share system.  Under Korean law, while companies may issue different types and classes of stock, generally, only one vote may be attached to each share of stock of a company (Article 369(1), Commercial Act of Korea).1  The Korean media thus appears to have assumed that the availability of the dual-class share system in the US is one of the main reasons why Coupang chose to list its shares on the NYSE over the KRX, as a means to ensure Mr. Kim’s continuing management control over Coupang after an IPO. 
 
Again, while we cannot comment on Coupang’s choice to list on the NYSE, the announcement does shed light on the debate over whether Korean companies should be allowed to issue a class of shares carrying more voting rights than other classes of shares.  The issue has been debated in Korea for years, particularly with much passion since 2015, when the US-based hedge fund, Elliot Management, challenged Samsung group’s ownership in Samsung C&T in connection with a merger between Samsung C&T and Cheil Industries. 
 
On one hand, proponents of the dual-class share system argue that it will provide Korean companies with measures to protect against hostile take-overs and other ownership challenges by foreign hedge funds and corporate raiders.  On the other hand, opponents argue that allowing the dual-class share system will derogate transparent corporate governance of Korean companies, especially with the ‘chaebol’, South Korea's family-controlled conglomerates, allowing the founding families to exercise oversized control with a significantly small ownership stake in the company. 
 
Notwithstanding, the desire to protect domestic Korean companies from foreign corporate raiders has initiated a legislative movement from Korea’s ruling Democratic Party to allow the dual-class share system, initially only for venture start-up companies. 
 
The policy rationale for focusing on venture start-ups is the recognition of the growing role of unicorn companies like Coupang and a desire to keep up the momentum of growth in Korea’s venture ecosystem; the government has noted that despite Korea’s economic struggles with the Covid-19 pandemic, the innovative venture and start-up industry has played a key role in increasing jobs.  The government expressed its plan to adopt a dual-class voting rights system for shares of unlisted venture companies to enable development of venture financial systems equivalent to those in the US’ Silicon Valley, with the ultimate goal being the creation of more jobs in the venture and startup industry.  
 
While the government’s policy stance sidesteps the core of the debate on the dual-class share system – particularly, the implications on corporate governance within Korea’s family-controlled chaebols – it will be very interesting to observe whether and to what extent the Commercial Act of Korea will be amended to allow the dual-class share system, and the implications this will have on corporate governance in Korea.

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1.  As in most cases, certain exemptions to this rule apply, but go beyond the scope of this article. Specific inquiries can be made to the authors.

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