[Disabled Wings of Public Interest Corporations] Suggestions for the Birth of Respected Public Interest Corporations

Securing Funding Sources Including Expanded Stock Contributions Is a Prerequisite
System Improvement Needed from Preventing Indirect Control to Expanding Use of Public Interest Funds

As society matures and the economy advances, the scope of activities of 'innovative public interest corporations' expands, and demand increases. This is because the importance of the third sector, which refers to non-governmental organizations (NGOs), non-profit organizations (NPOs), and others beyond the government (first sector) and for-profit companies (second sector), is highlighted. Many advanced countries already have public interest corporations solving problems that the state and market cannot address in fields such as science and technology and the environment, beyond areas like charity and scholarships.

On the other hand, domestic public interest corporations are far from expanding their scope; securing funding is an urgent issue. To overcome this, the culture of donation must change. This is why expanding the tax exemption limit for stock donations to public interest corporations is crucial. If inheritance and gift tax regulations change to improve the environment for companies to contribute stocks to public foundations, conditions for the growth of the third sector can be established.

◆ Separation of Profit Rights and Control Rights = Yoo Wook, Director of Dongcheon Public Interest Foundation, proposes significantly expanding the tax exemption range when companies donate stocks to public interest corporations. Currently, for companies in cross-shareholding restricted groups, the tax exemption limit for stock donations to public interest corporations is capped at 5%, regardless of voting rights exercise. He suggests raising this to 15% when voting rights are exercised only in limited areas such as appointing executives, amending articles of incorporation, or mergers and acquisitions (M&A), and up to 30% when no voting rights are exercised at all.

Instead, to ensure that the donated assets are used for public purposes, he proposed mandating that about 30-50% of 1% of the donated asset value be re-donated to other companies. This is to encourage public interest corporations receiving stocks not to be absorbed solely in their own projects but to allocate funds to civil society or areas with high demand for public interest projects. Director Yoo argued, "Through this, a public interest ecosystem where companies and civil society cooperate and coexist can be revitalized."

Park Chang-su, a lawyer at the law firm Taepyungyang, also said, "If the owner family of a large corporation donates stocks to establish a foundation, funds may concentrate only in areas of interest to the corporate group," adding, "Introducing re-donation can prevent funds from concentrating in specific areas and generally activate the public interest ecosystem."

◆ Improve Outdated Systems and Expand Dividends = Jang Ji-yeon, Director of the Korea Social Value Solidarity Fund, said, "In Korea, even if operating income occurs, only more than 1% of the donated asset value needs to be spent, so assets can be locked up," adding, "There needs to be a mechanism to require spending more than 1% of held assets." She also noted, "Until now, shackles were placed to prevent indirect control by large corporations, but the side effects are significant," and "Since system improvements are necessary, these issues need to be discussed together at one table."

Ryu Hong-beon, Operating Committee Member of the National Network for Civil Society Activation, pointed out, "There needs to be a review of the cases where corporate public interest corporations have not properly fulfilled their roles," adding, "They have only played roles similar to subordinate organizations of companies." He further said, "Because of this, actual public interest is not properly evaluated or clearly revealed, making it difficult for the argument for role expansion to gain traction." He also mentioned, "In the case of stocks, dividends are not paid or are insignificant compared to the donation scale, so alternatives need to be considered."

◆ "Expand the Basic Asset Area and Strictly Punish Misuse" = The 'basic assets' of the Public Interest Corporation Act refer to assets that form the foundation of the corporation's existence and must be continuously maintained to achieve the purposes of non-profit and public interest corporations. It is a kind of capital fund. Assets donated or acquired free of charge are classified as basic assets, while others are classified as ordinary assets. Although introduced with the enactment of related laws in 1975, the concept is still strictly applied. The intention is to prevent the use of assets in ways that contradict the purpose of establishing public interest corporations since tax benefits have already been received when assets are donated to public interest corporations.

When establishing a non-profit or public interest corporation, the minimum basic asset varies depending on the competent authority but is generally at least 500 million KRW. The required ratio of basic assets to ordinary assets also varies by competent authority. To use basic assets for operating expenses or to manage them through bonds, stocks, funds, etc., approval from the competent authority is required. Because the requirements are stringent, there are criticisms that the system is effectively neglected. In the U.S., managing basic assets is an exclusive right of the board of directors. If the donor agrees or the original purpose becomes practically difficult, the purpose can be changed. This allows for continuity of business and adaptation to changing times. Ultimately, voices are calling for expanding the flexibility of domestic public interest corporations while strictly punishing improper use or loophole exploitation, combining 'carrot and stick' approaches.

Park Hoon, Dean of the Graduate School of Taxation at the University of Seoul, advised, "It is possible to set a duration such as 10 years for basic assets and require that they be fully used for public purposes within that period while lifting operational restrictions." He also explained, "If it is impossible to fully release basic assets, instead of allowing them to be split and used directly in business areas, another approach is to allow more re-donations to other public interest corporations than currently permitted," adding, "Re-donating basic assets ensures that money entering public interest corporations continues to remain within the public interest domain."