"Venture Investment Activation, Regulations Significantly Eased"... Establishment of Joint Liability Limitation Rules

Ministry of SMEs and Startups Announces Legislative Notice for Amendment to Enforcement Decree of Venture Investment Promotion Act
"Enhancing Autonomy of Private Venture Investment Market... Strengthening Soundness"

Minister Kwon Chil-seung of the Ministry of SMEs and Startups is holding a meeting with seven young startup representatives who won the Innovation Award at CES 2021 and were selected as Asia's Under-30 Leaders by Forbes USA at Tipstown S1 in Gangnam-gu, Seoul. Photo by Moon Honam munonam@

[Asia Economy Reporter Kim Bo-kyung] To promote investment in early-stage startups, the minimum formation amount for venture investment associations by startup planners (accelerators) will be relaxed from 2 billion KRW to 1 billion KRW. A restriction will also be established to prevent requiring joint liability from stakeholders such as major shareholders and executives for obligations borne by invested companies.

The Ministry of SMEs and Startups announced that it will publicly notify the amendment to the "Enforcement Decree of the Act on Promotion of Venture Investment" from the 30th until February 8th of next year. The amendment includes measures to ease related regulations to promote investment in early-stage startups and activate the exit market, while strengthening investment soundness. This is part of the "Supplementary Venture Measures for Leapfrogging to a Global Venture Powerhouse" announced by the ministry in August.

An official from the Ministry of SMEs and Startups stated, "This amendment enhances the autonomy of the private venture investment market and organizes related provisions necessary for creating a sound venture investment market, such as limiting joint liability for startup founders."

First, to activate investment in early-stage startups, the minimum formation amount for venture investment associations by startup planners will be relaxed, and the formation of personal investment associations by startup planners belonging to large business groups subject to mutual shareholding restrictions will be permitted.

For venture investment associations formed by startup planners who have an investment obligation in early-stage startups, the minimum formation amount will be relaxed from the current 2 billion KRW to 1 billion KRW to promote investment in early-stage startups.

Even if a startup planner who is allowed to form a personal investment association belongs to a mutual shareholding restricted group, they will be allowed to form a personal investment association, enabling large corporations to diversify their investment methods in early-stage startups. Previously, startup planners belonging to such groups were not allowed to form personal investment associations.

Regulations prohibiting startup investment companies, venture investment associations, etc., from acquiring stocks or equity of companies belonging to mutual shareholding restricted groups will also be eased.

If a startup or venture company belongs to a mutual shareholding restricted group due to mergers and acquisitions (M&A) or stock exchanges after attracting venture investment, exceptions will be recognized when the startup investment companies or venture investment associations that invested in the company hold or acquire stocks of companies belonging to the mutual shareholding restricted group.

Measures to increase the autonomy in the formation and operation of venture investment associations will also be introduced.

Previously limited to "cash," venture investment association contributions will now be allowed in "in-kind" forms such as industrial property rights. This will enable invested companies to be granted rights to utilize the relevant intellectual property according to contracts in the future.

Additionally, a special case will be introduced where, if the venture investment association's contribution ratio is less than 10%, the contributed venture investment association will be regarded as a single limited partner (LP) and counted as one LP in the number of LPs of the receiving venture investment association.

To foster a sound venture investment environment, the expertise requirements for individual general partners (GPs) of personal investment associations will be strengthened. Individual GPs must have investment capabilities and operate personal investment associations by having at least five years of experience in managing personal investment associations or by completing GP-related training courses.

Furthermore, it will be explicitly stated in the conduct restriction regulations that obligations borne by invested companies shall not require joint liability from stakeholders. Previously, there was no restriction preventing startup investment companies or venture investment associations from demanding joint liability from executives or major shareholders who are stakeholders for obligations borne by invested companies.

Park Yong-soon, Director of Venture Innovation Policy at the Ministry of SMEs and Startups, said, "By activating investment in early-stage startups and the exit market, we aim to promote this second venture boom more vigorously in the private sector by revising the enforcement decree to enhance the autonomy and soundness of the private venture investment market."

Opinions related to this enforcement decree amendment can be submitted until February 8th of next year. Related information can be found on the Ministry of SMEs and Startups website and the Republic of Korea Electronic Official Gazette.

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