[Legal Information] ‘Venture Investment Act Enforcement Decree’ Amended_Venture Investment Fund Minimum Formation Amount Reduced to 10 Billion Won

A revised ordinance concerning ‘Act on Promotion of Venture Investment’ was enacted on August 23rd, streamlining venture investment regulations. This revision addresses several key issues, including streamlining the formation of venture investment funds, improving regulations related to mergers and acquisitions (M&A), and limiting joint and several liability for investors in portfolio companies.

Key provisions of the revised ordinance are as follows:

Streamlining the Formation of Venture Investment Funds

• Previously, even small startup accelerators (exellers) faced difficulties forming venture investment funds because of minimum formation requirements of 20 billion won and lower capital compared to investment corporations. The revision lowers this minimum formation amount to 10 billion won, facilitating investment in early-stage startups.
• Furthermore, the restrictions on the number of shareholders were eased, allowing the formation of venture investment funds with a single shareholder.

Improving Regulations Related to Mergers and Acquisitions (M&A)

• Previously, when a portfolio company invested by a venture investment fund became part of a large conglomerate (chaebol) through an M&A, the venture investment fund held shares of the chaebol’s subsidiary, creating a potential violation of investment restrictions. The revision allows the venture investment fund to temporarily hold the portfolio company’s shares for up to 5 years in such cases.

Limiting the Imposition of Joint and Several Liability for Investors in Portfolio Companies

• The imposition of joint and several liability for investors in portfolio companies was restricted if the executives or major shareholders of the portfolio company did not act with intent or gross negligence.

These revisions, aligning venture investment regulations with practical realities, are expected to serve as a foundation for venture investment fund formation and foster increased investment in early-stage startups. For more details, please refer to the press release and related articles from the Small and Medium Business Administration: https://www.korea.kr/news/pressReleaseView.do?newsId=156521142.

Law Firm Veat provides expert legal counsel regarding the formation and operation of venture investment funds based on the Venture Investment Act. If you require advice regarding the formation and operation of venture investment funds in connection with the Venture Investment Act revision, please feel free to contact Law Firm Veat at any time.

Thank you.
Law Firm Veat