'Individual Investment Association' Entrustment Standard Raised to 2 Billion, Easier Association Registration

[Illustration=Photo by Lee Young-woo, Asia Economy]

[Asia Economy Reporter Kim Jong-hwa] When individuals form a partnership primarily for venture investment, the entrusted asset threshold has been raised from the previous 1 billion KRW to 2 billion KRW, easing the burden of partnership formation and registration. Additionally, investments are now allowed in financial companies operating in four sectors: electronic financial services, internet-only banks, online small-amount investment brokerage, and small overseas remittance services.

The Ministry of SMEs and Startups announced on the 22nd that it has revised and implemented a notification as of the 17th, mainly relaxing the entrusted asset threshold for individual investment partnerships and allowing investments in 'online investment-linked finance business.'

First, the formation of individual partnerships and investment regulations have been eased. With the recent second venture boom, interest among individual investors in venture investment has increased, leading to a rapid rise in the formation of individual investment partnerships. As of the end of July, the number of individual investment partnerships and the amount formed reached 418 and 252.3 billion KRW respectively, doubling compared to the same period last year, and the total amount formed in operating partnerships reached 1.2127 trillion KRW.

To ensure sound management of partnership assets and protect investors, partnerships with assets of 1 billion KRW or more were required under the Capital Markets Act to entrust the custody and management of assets to trust companies such as banks. However, with the recent strengthening of trust companies' supervisory duties to prevent recurrence of private equity fund failures, most trust companies have refused custody, causing difficulties in forming partnerships. Accordingly, the Ministry of SMEs and Startups raised the entrusted asset threshold from 1 billion KRW to 2 billion KRW to reduce the burden of partnership formation.

The scope of investable financial businesses has also been expanded. Partnerships can now invest in financial companies in four sectors that provide financial services using information and communication technology: electronic financial services, internet-only banking, online small-amount investment brokerage, and small overseas remittance services.

Previously, the 'online investment-linked finance business' (formerly P2P finance), which supplies funds collected from investors through online platforms to borrowers, could not be invested in due to lack of legal grounds. However, with the recent enforcement of the 'online investment-linked finance business,' investments in this sector are now additionally permitted.

Sanctions standards for partnership violations have also been revised. The managing partner (partnership founder) who manages and operates partnership assets may delegate part of their duties to limited partners (investors). However, for partnerships that delegate tasks such as discovering investee companies and partnership management to persons who are not limited partners, new standards have been established allowing for dispositions such as caution, warning, or corrective orders.

Exemption grounds for sanctions have also been established. Previously, only mitigation of sanctions was possible considering the motive and degree of violation for partnerships violating laws, but now sanctions may be exempted if there are reasonable grounds.

Jeon Se-hee, Director of Investment Recovery Management at the Ministry of SMEs and Startups, said, "Through this notification revision, we expect partnerships to be revitalized and managing partners to operate partnerships responsibly."