Last year, a CEO of a Korean venture company urgently contacted their legal team. While preparing to renew their venture business certification ahead of a new investment round, they encountered an unexpected obstacle.
What they initially thought was a simple documentation issue turned out to be new requirements resulting from legislative amendments. Their lack of awareness about these changes almost derailed their investment timeline.
Fortunately, swift action resolved the issue, but this incident served as a crucial lesson: failing to stay current with changing regulations can significantly disrupt business operations.
This year brought important changes that venture company executives must particularly note. The Special Act on the Promotion of Venture Businesses has been comprehensively reorganized into the Special Act on Fostering Venture Businesses, accompanied by several practical operational changes.
These changes extend beyond mere nomenclature adjustments, having substantial impacts across all aspects of venture business operations.
Fundamental Changes Brought by the Legislative Amendment
The most noteworthy change is the transformation of the law's fundamental nature. While the previous Special Measures Act had a temporary character, this amendment has converted it into a permanent law.
The expiration date of December 31, 2027, has been removed, establishing a foundation for venture business support policies to be pursued from a more stable and long-term perspective.
This change carries more than symbolic significance. Venture companies can now establish medium to long-term business plans with confidence in policy continuity, and investors can evaluate the investment environment as more stable.
International investors particularly view this as a clear signal of the Korean government's commitment to fostering venture businesses.
Systematization of Venture Business Certification Procedures
One of the most practically important changes in the amended law effective this year is the increased systematization of venture business certification procedures.
Notably, the law now explicitly states that small and medium enterprises seeking venture business certification through the venture investment type must also undergo formal certification procedures.
Previously, companies that received investments above a certain threshold from venture capital firms could obtain venture business certification through relatively simple procedures.
However, all applying companies must now undergo the same level of verification regardless of investment type.
This measure aims to enhance the reliability of venture business certification and prevent the proliferation of inadequate venture companies.
For instance, an IT startup that could easily obtain venture business certification last year simply by receiving a 1 billion KRW investment from a venture capital firm now must undergo additional procedures including technology assessment and business feasibility reviews. This process added approximately two months to their timeline.
While initially perceived as cumbersome, the company's CEO later reflected that it ultimately provided an opportunity to review and improve their business model.
Specification of Representative-Related Documentation
Significant changes have also been made to the documents required for venture business certification or renewal, with requirements related to representative identity verification becoming particularly stringent.
While submitting only business registration certificates and corporate registry transcripts previously sufficed, additional documentation is now required.
First, submission of Employment Insurance Workplace Status Confirmation has become mandatory. This document must include detailed information including the representative's date of birth and must be issued within the last three months.
Second, proof of the representative's enrollment in the four major social insurance programs must also be submitted. This measure aims to prevent fraudulent venture business certification through shell companies and ensure that only genuinely operating businesses receive benefits.
A biotechnology venture company experienced these changes firsthand when applying for venture business renewal early this year. Having outsourced their social insurance management to an external labor firm, preparing the necessary documents took longer than expected.
This was particularly true when representatives served as executives in multiple companies, as separate supporting documents were required for each company.
Institutional Improvements for Talent Acquisition
The law amendment also includes many positive aspects, particularly establishing various institutional mechanisms to address the chronic talent acquisition challenges faced by venture companies.
The most notable change is the expansion of leave eligibility. Previously, only researchers from public research institutions in science and technology fields could take leave to work at venture companies, but this has now been expanded to researchers from public research institutions across all fields.
This opens pathways for experts in humanities, social sciences, arts, design, and various other fields to participate in venture companies, expected to significantly contribute to diversifying the venture ecosystem.
An education technology startup successfully leveraged this change to recruit a senior researcher from an education research institute as their CTO. While this recruitment was previously impossible as the researcher wasn't eligible for leave, the law amendment allowed formal leave application and a two-year contract.
Introduction and Utilization of Performance-Contingent Stock
The venture company talent compensation system has also seen innovative changes with the introduction of the performance-contingent stock grant contract system.
This new incentive tool complements the existing stock option system, enabling more direct and effective compensation for employees.
Performance-contingent stock operates in two main ways.
The pre-payment method involves granting transfer-restricted shares upfront with restrictions lifted upon achievement of performance targets, while the post-payment method grants shares only upon performance achievement.
Companies can select the appropriate method based on their circumstances and objectives.
A fintech startup granted performance-contingent stock to 10 core developers early this year.
Adopting a post-payment method contingent on two years of service and specific revenue targets, they prevented key talent departure while increasing employee commitment to company growth objectives.
Given the cash compensation limitations typical of startups, this proved an effective means of sharing future value.
Establishment of Specialized Venture Business Support Institutions
Another important change effective this year is the introduction of the specialized venture business support institution designation system.
This institutional mechanism aims to perform venture business support activities more professionally and systematically.
Designated specialized institutions will conduct various support programs alongside the Ministry of SMEs and Startups, enabling venture companies to receive more professional and customized support through these institutions.
Substantial assistance is particularly expected in areas requiring expertise such as technology evaluation, investment linkage, and overseas expansion support.
Key Considerations for Practitioners
Following the legislative amendments, management support department practitioners must pay particular attention to several matters.
First, correct legal nomenclature must be used in all official documents.
Cases of continued use of old legal names in contracts, disclosure materials, and external presentations can affect documents' legal validity and require attention.
Second, venture business certification renewal cycles and procedures must be carefully managed.
Particularly when facing investment attraction or government support program applications, renewal procedures should be initiated with sufficient time allowance as new documentation requirements may extend timelines beyond expectations.
Third, when introducing performance-contingent stock systems, articles of incorporation amendments and shareholder meeting approvals are mandatory.
As tax and accounting treatments differ from existing stock options, proceeding with expert consultation is advisable.
Future Outlook and Response Strategies
The conversion of the Venture Business Act to permanent law signals the maturation of Korea's venture ecosystem.
With confirmed government commitment to continued support, venture companies can now plan and pursue businesses from a longer-term perspective.
However, management and supervision of venture companies are also expected to strengthen.
Policy authorities' determination to distinguish between genuine operating venture businesses and formal venture companies is intensifying and likely to continue.
Therefore, venture companies must pay increased attention to legal compliance, with management support departments particularly needing to continuously monitor and respond to changing laws and regulations.
Regular reviews of legislative amendments, utilization of expert consultation, and strengthened communication with relevant ministries are necessary.
This year's Venture Business Act amendment is evaluated as a new turning point for Korea's venture ecosystem.
While adapting to change isn't easy, these changes should be leveraged as opportunities for advancement.
Management support personnel in venture companies must accurately understand and appropriately respond to these changes, playing crucial roles in supporting their companies' sustainable growth.