Essential Filing System for Securities Issuance
For companies seeking to raise funds through securities issuance, the first matter to confirm is the obligation to file a securities registration statement.
Whether to file a securities registration statement or submit only small offering disclosure documents is determined by the scale of the offering amount.
Recent years have seen multiple amendments to relevant laws, causing frequent confusion among practitioners. Particularly, methods for calculating offering amounts and effective dates directly impact actual securities issuance schedules, making accurate knowledge essential.
Securities Registration Statement Filing Threshold: 2 Billion KRW as the Watershed
Basic Standard: Filing Obligation for Offerings of 2 Billion KRW or More
Under current Korean Financial Investment Services and Capital Markets Act (FSCMA), companies must file securities registration statements with the Financial Services Commission when the total amount of securities offering or sale reaches 2 billion KRW or more.
This standard was raised from the previous 1 billion KRW to 2 billion KRW in September 2001, a measure designed to ease fundraising burdens for small and medium enterprises.
However, there is one important exception: for stock offerings aimed at listing on securities markets or KOSDAQ, companies must still file registration statements for offerings of 1 billion KRW or more.
This regulation strengthens transparency for listed companies.
Understanding the Complex 2 Billion KRW Calculation Method
The 2 billion KRW threshold is not determined solely by the current issuance amount.
Laws require inclusion of past issuance records in the calculation, necessitating careful attention.
Calculation for Offerings to 50 or More Persons
The current offering amount is combined with amounts raised in the past year without filing registration statements.
For example, if a company raised 1.5 billion KRW through small offerings last year and plans to raise an additional 800 million KRW this year, the combined total of 2.3 billion KRW requires filing a securities registration statement.
Calculation for Under 50 Persons with Transfer Possibility
Even when targeting fewer than 50 persons for subscription solicitation, if there's a possibility of transfer to 50 or more persons within one year after issuance, it's considered an offering.
In such cases, the current subscription solicitation amount is combined with similar solicitation amounts from the past six months for determination.
Actual calculations should be based on actual consideration at subscription acceptance, expected prices, par values, etc., requiring balanced aggregation. Professional review is advisable since errors frequently occur in this area.
Scope of Securities Subject to Registration Statement Filing
Securities Requiring Filing
The scope of securities requiring registration statement filing is quite broad.
Beyond stocks and stock subscription warrant certificates, most corporate bonds including debentures, convertible bonds, and bonds with warrants are included.
The scope has expanded recently with the increase in asset securitization-related securities.
Beneficiary certificates issued by trust companies and investment certificates issued by asset-backed securitization companies under the Asset-Backed Securitization Act are also subject to filing.
Various securities issued by foreign corporations and depositary receipts (DRs) based on them are similarly included.
Even certain commercial papers issued by stock-listed or association-registered corporations for fundraising purposes may be subject to filing when determined by the Minister of Economy and Finance.
Securities Exempt from Filing
Conversely, certain securities are exempt from filing obligations.
Most representative are government bonds and local government bonds.
These are issued by governments or local authorities and are considered safe enough to protect investors without separate disclosure.
Bonds or investment certificates issued by corporations established under special laws are mostly exempt.
However, securities company bonds, specialized credit finance company bonds, and mortgage-backed securitization company bonds are exceptionally subject to filing.
Housing redemption bonds and bank bonds are also exempt from filing obligations.
Additionally, no registration statement filing is required when governments, local authorities, or government-invested institutions sell securities they hold.
Timing of Registration Statement Filing and Effectiveness
Pre-Filing is the Principle
Registration statements must be filed before offering or selling securities, and actual offering or selling can only begin after the Financial Supervisory Service completes acceptance.
This system ensures investors can make investment decisions based on sufficient information. Therefore, subscription solicitation through newspaper announcements or internet postings is only possible after registration statement acceptance.
Failure to follow this sequence may result in sanctions for violating the FSCMA.
Meaning and Timing of Effectiveness
Acceptance of a registration statement doesn't immediately allow subscription acceptance.
A certain period must pass from the acceptance date for effectiveness, after which formal subscription solicitation and acceptance become possible.
Effectiveness periods vary by issuance type and target:
- Listed corporations: 10 days for general offerings or preferential offerings to shareholders; 7 days for shareholder allocation or third-party allocation
- General corporations: 15 days for general offerings or preferential offerings to shareholders; 7 days for shareholder allocation or third-party allocation (slightly longer than listed companies)
These effectiveness periods provide recognition time for market participants to adequately review registration statement contents.
However, effectiveness doesn't mean the government guarantees the securities' value or acknowledges complete accuracy of registration statement contents.
Small Offering System: Options for Under 2 Billion KRW
Background of the Small Offering System
For small-scale securities issuances under 2 billion KRW, simplified procedures through small offering disclosure document submission are available.
This system was first introduced in October 2000, initially targeting amounts under 1 billion KRW. When the securities registration statement filing threshold was raised to 2 billion KRW in September 2001, the small offering target range was expanded to under 2 billion KRW.
This system emerged from policy consideration to enhance SME fundraising convenience while maintaining minimum investor protection.
Small Offering Filing Procedures
Corporations conducting small offerings must prepare small offering disclosure documents and attachments including financial status, business performance, and subscription solicitation methods.
Unlike securities registration statements, filing is only required up to 3 days before offering commencement, representing significant simplification.
Particularly noteworthy is that the effectiveness system doesn't apply to small offerings.
Offering can begin immediately upon disclosure document submission, shortening fundraising schedules.
Audit Report Submission Requirements
Even for small offerings, basic financial information must be provided to investors.
External auditor audit reports must be included, with submission standards varying by company establishment timing or settlement status.
Generally, the most recent fiscal year's audit report suffices; for companies with semi-annual settlements, semi-annual review reports must also be submitted.
Early-stage corporations can substitute with the most recent quarter's audit report, reducing burden on startup companies.
Common Oversights by Practitioners
Pitfalls in Calculating Subscription Solicitation Targets
Errors frequently occur with the 50-person standard, a key criterion for determining whether an issuance constitutes a public offering.
The calculation includes not only current issuance subscription solicitation recipients but also those solicited for identical securities within the past six months.
Particularly noteworthy is that major shareholders, specially related persons, employees, and affiliate company employees are not excluded from the 50-person calculation.
Cases where companies mistakenly perceive private placements as such and later face sanctions for constituting public offerings occur regularly.
Transfer Possibility Standards and Importance of Lock-up Periods
Even when targeting fewer than 50 persons for subscription solicitation, if transfer to 50 or more persons is possible within one year after issuance, it's considered an offering.
To avoid this, transfer restriction measures (lock-up periods) must be established.
For companies with past public offering records, even third-party allocations without transfer restrictions constitute deemed offerings, making disclosure obligations unavoidable.
Missing these detailed regulations can result in unexpected disclosure obligations.
Offering Commencement Schedules and Document Submission Timing
Errors frequently occur in calculating the 3-day submission period for small offering disclosure documents by including the offering commencement date.
Precisely, submission must be completed 3 days before the offering commencement date, excluding the commencement date from calculations.
Additionally, when shareholders sell holdings to 50 or more persons, the issuing company must file securities registration statements—problems arise when shareholders independently conduct sales without this knowledge.
Systematic Preparation is Key to Success
Securities issuance fundraising can serve as an important foundation for corporate growth.
However, inadequate understanding of complex disclosure regulations can lead to unexpected delays or sanctions, requiring careful approach.
Key matters requiring accurate understanding and preparation include:
- Securities registration statement filing obligations based on the 2 billion KRW threshold
- Calculation methods including past issuance records
- Subscription solicitation target calculations
- The 1 billion KRW standard for listing-purpose offerings
The small offering system provides useful fundraising tools for SMEs, but simplified procedures may limit information provided to investors.
Therefore, selecting appropriate issuance methods considering long-term corporate growth stages and funding scales is important.
Understanding Korea's securities regulatory framework is essential for:
- Companies planning IPOs or capital raising
- Foreign investors seeking Korean market entry
- Financial advisors working with Korean clients
- Legal practitioners handling securities matters
The system balances investor protection with capital formation efficiency, but complexity requires professional guidance for optimal outcomes.