Ministry of SMEs and Startups Issues Administrative Actions Against 8 Venture Capital Firms for Legal Violations

[Asia Economy Reporter Kim Daeseop] The Ministry of SMEs and Startups announced on the 27th that it conducted regular inspections last year on 58 Small and Medium Venture Capital Companies (hereinafter referred to as "Venture Capital Companies") and imposed administrative sanctions on 8 companies that violated laws and regulations.

Based on Article 40 of the Small and Medium Enterprise Startup Support Act, the Ministry inspects Venture Capital Companies annually for legal violations. In response to the recent trend of increasing venture fund management scale, the inspection cycle for each Venture Capital Company was shortened from 3 years to 2 years starting last year to strengthen supervision.

This regular inspection targeted 58 Venture Capital Companies subject to the inspection cycle, excluding newly registered companies, out of 138 registered Venture Capital Companies as of the end of 2018, to check for violations of the Small and Medium Enterprise Startup Support Act. Among the 8 companies that violated the law, 6 received corrective orders, and 4 received warnings (2 companies received both).

The main types of violations included transactions with special related parties of major shareholders (or investors), exceeding the loan limit (50 million KRW) to Venture Capital Company executives and employees, and side agreements outside of investment contracts. Additionally, one Venture Capital Company that repeatedly violated issues found in past regular inspections is planned to undergo deregistration procedures.

The details of administrative sanctions imposed on Venture Capital Companies are disclosed on the website for 2 years. Depending on the severity of the violation, the company may face disadvantages in selection for the Mother Fund investment project, and if corrective orders are not fulfilled within a certain period, additional measures such as deregistration may be taken.

A Ministry official stated, "Securing the soundness of the investment market is one of the important indicators for the healthy growth of the venture ecosystem," and added, "This year, regular inspections will be conducted on about 70 Venture Capital Companies, an increase of approximately 20% compared to the previous year, and we will make every effort to supervise Venture Capital Companies to ensure that investment resources in the market are smoothly supplied to startups and venture companies."