"Let's Reduce the Disappearance of SMEs with No Successors"…National Assembly Opens Discussion on M&A Support

Special Act Proposed by Assemblyman Lee Cheolgyu, Chair of National Assembly’s Trade, Industry, Energy, SMEs and Startups Committee
Ruling Party’s Kim Won-yi and Kim Dong-ah Also Submit Bills
Legislation Expected to Accelerate During This Year’s Regular Session

A special law to support corporate succession, aimed at revitalizing mergers and acquisitions (M&A) among small and medium-sized enterprises (SMEs), which the government is promoting, has also been proposed by opposition lawmakers. As both the ruling and opposition parties share a consensus on the matter, it is expected that full-fledged discussions will begin in earnest in the second half of the year, following the June 3 local elections.

Photo by Gemini Generated

According to the National Assembly on May 7, Lee Cheolgyu, a member of the People Power Party, proposed the Special Act on Corporate Succession Support on April 28. Assemblyman Lee serves as the chair of the National Assembly’s Trade, Industry, Energy, SMEs and Startups Committee. The special act on corporate succession was introduced to move beyond family-centered business succession and to facilitate M&A-based succession by non-family members.

To address the aging of SME chief executive officers (CEOs), the Ministry of SMEs and Startups is pursuing the establishment of a support system for business succession as a national policy agenda. As of 2023, the proportion of manufacturing SME CEOs aged 60 or older increased by 22.7 percentage points compared to ten years prior. This growth rate is more than twice as fast as the increase in the ratio of people aged 60 or older in the overall population, which rose by 10.7 percentage points. From 2019 to 2023, looking at the number of manufacturing SMEs by CEO age group, the compound annual growth rate (CAGR) for those in their 60s and above was 11.2%, the highest among all age groups.

In the 22nd National Assembly, bills were submitted mainly by members of the Democratic Party, but the bill sponsored by Assemblyman Lee paved the way for discussion in the National Assembly. In particular, it is significant that the chair of the relevant standing committee personally proposed the bill. Assemblyman Lee’s bill stipulates that the special act applies to cases where an SME with a CEO aged 60 or older who has managed the company for more than ten years is succeeded, and it includes special provisions for tax reductions and procedural exceptions. The bill also contains measures such as the registration of advisors and intermediaries to resolve information asymmetry, and mandates that the Korea Technology Finance Corporation exclusively manage and operate an integrated corporate succession platform.

Among the Democratic Party’s proposals are bills introduced by Assemblyman Kim Won-yi (ruling party secretary of the Trade, Industry, Energy, SMEs and Startups Committee) and Assemblyman Kim Dong-ah. However, due to the June 3 local elections and negotiations over the organization of the National Assembly, discussions in the standing committee are expected to take place in the second half of the year. Since support for SME M&A has been a topic of interest in previous administrations as well, if the discussion schedule is set, the passage of the bill within this year is expected to proceed smoothly. During the Yoon Suk Yeol administration in 2024, Oh Youngjoo, the former Minister of SMEs and Startups, had also announced plans to push for the enactment of a special law on corporate succession to address the aging of SME CEOs.

While both the ruling and opposition parties have reached a consensus on the special act for corporate succession, there are also calls for the revitalization of the exit market. Kim Yongjin, Professor of Business Administration at Sogang University, said, "It is necessary to provide substantial tax benefits for search funds (acquisition entrepreneurship) and continuation funds (transferring held assets to new funds), and to allow more autonomous investments and increase incentives for business development companies (BDCs) being promoted this year." He added, "We need to design a structure in which these financial vehicles are used to change overall governance in a shareholder-friendly direction, thereby facilitating smooth business succession."

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