Virtuous Cycle of Investment, Exit, and Reinvestment to Be Enhanced... Venture Investment Act Amendment Pre-announced

Prohibition of Joint Liability for Startup Planners and Individual Investment Associations Introduced
Investment Limit for Listed Companies by SME M&A Funds to Be Expanded

The Ministry of SMEs and Startups will conduct a pre-announcement of legislation for the amendment to its Venture Investment Act notice, aiming to foster a dynamic venture investment ecosystem. The goal is to establish a virtuous cycle of "investment, exit, and reinvestment" by introducing new regulations, such as prohibiting joint liability for startup planners and individual investment associations.

Yonhap News

On May 28, the Ministry of SMEs and Startups announced that it would conduct a 20-day pre-announcement of legislation for the amendment to the Venture Investment Act notice from May 28 to June 17. The ministry plans to introduce a regulation prohibiting joint liability for startup planners and individual investment associations through amendments to the "Regulations on Registration and Management of Startup Planners" and the "Regulations on Registration of Individual Investment Associations and Issuance of Investment Certificates."

Currently, the regulations impose joint liability for investment repayment on startup CEOs, which has been criticized both inside and outside the industry for hindering bold and innovative entrepreneurship. Accordingly, in 2018, joint liability for third parties was prohibited for the Korea Venture Investment Fund, and in 2023, for venture capital companies and associations. Now, the ministry plans to take a step further by prohibiting joint liability for third parties for startup planners and individual investment associations as well.

Additionally, the ministry will revise the "Regulations on Registration and Management of Venture Investment Associations" to expand the investment limit for listed companies by M&A venture funds. In 2022, the ministry announced the "Plan to Foster a Dynamic Venture Investment Ecosystem" and pursued an expansion of the investment limit for listed companies by M&A venture funds beyond the existing 20% of committed capital. Accordingly, the amendment stipulates that the investment limit for listed companies by M&A venture funds for SMEs and venture companies, as delegated by the current Enforcement Decree of the Venture Investment Act, will be set at 60%. By making the M&A methods of these funds more flexible, this is expected to become an important opportunity to vitalize exits and strengthen the virtuous cycle of investment capital.

The ministry also plans to simplify the interim distribution procedures of venture investment associations to facilitate smooth reinvestment. Under the current system, venture investment associations are required to obtain the consent of members for interim distribution of committed capital, resulting in lengthy procedures even for small amounts. The amendment stipulates that if the association’s articles of association specify a pre-determined method for distributing committed capital, the distribution can proceed after providing prior notice to members at least 14 days in advance. This is expected to facilitate reinvestment and enhance the liquidity of venture investment capital.

Kim Bongdeok, Director of Venture Policy at the Ministry of SMEs and Startups, said, "With this amendment, we expect to enhance the soundness of the venture investment ecosystem and create an investment environment where exits and reinvestments can proceed smoothly." He added, "We will gather a wide range of opinions during the pre-announcement period, finalize the amendment, and implement it promptly after regulatory review and other necessary procedures."

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