Expanding the Scope of Startup Concepts to Promote Investment and Innovative Startups... Equity Ownership Ratio Increased from 30% to 50%

Enforcement Decree of the Startup Support Act Fully Amended Approved by the Cabinet Meeting
5-Year Participation Ban for Receiving Government Support by Fraudulent Means
Responding to 4th Industrial and Digital Environments... Effective from the 29th

Minister Lee Jong-ho of the Ministry of Science and ICT and Minister Lee Young of the Ministry of SMEs and Startups are attending the Cabinet meeting. Photo by Hyunmin Kim kimhyun81@

The government is expanding the scope of startups to encourage investment between companies and promote innovative entrepreneurship. Additionally, a new regulation has been established to restrict participation in support projects for up to five years if involved through fraudulent means.

On the 21st, the Ministry of SMEs and Startups announced that the full revision of the Enforcement Decree of the Small and Medium Enterprise Startup Support Act (Startup Support Act) was approved at the Cabinet meeting. This is a follow-up measure following the amendment of the Startup Support Act. The Startup Support Act was fully revised last December to promote innovative startups and support the growth of startup companies in new industry sectors. The Enforcement Decree stipulates the scope of startups, criteria for promising growth startups, and participation restriction standards for startup support projects as delegated by the law.

Looking at the details, one of the conditions defining the scope of startups, the stock ownership restriction rate, has been relaxed. The stock ownership restriction rate for newly established corporations by individual business owners or corporations has been raised from the previous 30% or more to over 50%.

Previously, the stock ownership rate was limited to 30% to prevent moral hazard where individual business owners or corporations establish a corporation exercising management control to continuously receive government startup support. For example, if individual A, as a sole proprietor, established Corporation B based on accumulated experience and similar technology and invested 30% or more in Corporation B, Corporation B was not considered a startup. Also, if a company within seven years of establishment received 30% or more investment from another corporation, it was excluded from being a startup company.

'The 63rd Franchise Startup Expo' held at SETEC in Gangnam-gu, Seoul. Photo by Jinhyung Kang aymsdream@

The government judged that relaxing the stock ownership restriction rate would activate serial entrepreneurship, inter-company investment, and M&A, thereby promoting innovative startups in new industry sectors.

Furthermore, the criteria for promising growth startups have been specified as "startup companies with 10 or more regular employees whose sales or employment of regular employees have increased by an average of 20% or more annually over the past three years." Accordingly, it is expected to facilitate the discovery and selection of startups that the central government or local governments will focus on supporting.

A new regulation has also been established to restrict participation in startup support projects for up to five years if involved through false or fraudulent methods. Until now, the sanction standards were set at the level of startup support project management guidelines rather than by law, but by specifying them in the Enforcement Decree, it is expected to resolve legal uncertainties regarding the prohibition of fraudulent acts and post-management. The Ministry of SMEs and Startups plans to simultaneously promulgate and enforce the Startup Support Act along with the Enforcement Decree, Enforcement Rules, and Ministry notifications on the 29th.

Minister Lee Young of the Ministry of SMEs and Startups said, "This revision of the Enforcement Decree is to fully implement the Startup Support Act, which was comprehensively revised to suit the startup environment of the 4th Industrial Revolution and the digital economy era," adding, "Once the law is enforced, it is expected to help startups in new industry sectors, investment in promising growth startups, and growth into global companies."

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