Crowdfunding Allowed for SMEs to Issue... Investor Limits Also Doubled

[Asia Economy Reporter Koo Eun-mo] Financial authorities have decided to expand the issuance limit (fundraising limit) for crowdfunding from 1.5 billion KRW to 3 billion KRW annually to enhance companies' fundraising capabilities, and to allow issuance by unlisted small and medium-sized enterprises (SMEs). Corresponding to the increase in issuance limits, the investment limits for investors will also be doubled.

On the 16th, the Financial Services Commission (FSC) announced these measures at the 'Crowdfunding Development Plan Meeting' chaired by FSC Chairman Eun Sung-soo. Crowdfunding is a system that raises funds from multiple investors online and can be classified into securities-type, loan-type (P2P), reward-type, and donation-type based on the fundraising and compensation methods.

The government plans to expand the scope of issuing companies and raise the issuance limits to enhance crowdfunding's role in corporate financing. First, the scope of issuing companies will be expanded from unlisted startups and venture companies to unlisted SMEs, and crowdfunding will also be allowed for listed companies within three years after listing on KOSDAQ. However, corporations required to submit business reports that can raise funds through public offerings will be excluded. With the expansion of the scope of issuing companies, the number of companies eligible for crowdfunding is expected to increase from about 3.3 million to approximately 5.3 million, about 1.6 times more.

The issuance limit will be raised from the current 1.5 billion KRW annually to 3 billion KRW annually for stocks only. The bond issuance limit will remain at 1.5 billion KRW annually, but to encourage repayment, the limit will be restored by the amount repaid. For example, if 1.5 billion KRW is issued and 500 million KRW is repaid within the year, an additional 500 million KRW can be issued within the same year.

As the issuance limit for companies increases, the total annual investment limit for investors will also be doubled to enhance investment incentives. First, the annual investment limit for general investors will be raised from 10 million KRW to 20 million KRW, and the annual investment limit for qualified investors will be increased from 20 million KRW to 40 million KRW. However, the current annual investment limits per company for general investors and qualified investors, which are 5 million KRW and 10 million KRW respectively, will be maintained.

The government plans to systematically support corporate growth by establishing a policy finance support system for follow-up investments and loans to enhance trust in the crowdfunding market. First, Korea Growth Finance and the Korea Securities Depository will newly establish a K-Crowdfunding Fund worth about 20 billion KRW, and additional funds will be raised depending on the utilization rate. Furthermore, policy financial institutions will support linked loans worth 150 billion KRW over the next five years for companies that succeed in crowdfunding.

Investor protection measures will also be strengthened. Crowdfunding issuance by companies with criminal records such as fraud will be prohibited, and supervision of illegal and unsound business practices by intermediary institutions will be intensified to establish market order. Considering the long investment period, the government plans to expand and systematize information provision by issuing companies to investors.

Information provision to investors will be expanded. Currently, issuing companies are only legally required to disclose financial statements once a year. This has caused difficulties for investors to timely learn about important matters such as management status, mergers, business transfers, and closures after securities issuance, highlighting the need to systematize disclosure of important information by issuing companies.

To address this, companies will be required to notify important matters such as continuation and organizational changes on the intermediary institution’s website. Additionally, Crowdfunding Net will be revamped to provide management information of issuing companies in a clear and organized manner.

On this day, FSC Chairman Eun Sung-soo said, “Building trust is crucial for the sustainable growth of the crowdfunding market,” and added, “Investment losses due to illegal activities inevitably lead to loss of trust and market contraction, so I hope intermediary institutions, companies, and related organizations take responsibility and lead the creation of a trustworthy market.”

The authorities plan to promptly implement measures that do not require legal amendments, such as expanding the scope of intermediary institutions’ business (reporting incidental business) and expanding policy finance support, and to conduct legislative notice for matters requiring legislation in the third quarter.

This content was produced with the assistance of AI translation services.