[Exclusive] "Children Refuse Succession"... Now Business Succession to 'Third Parties' Becomes Possible

Research Project by the Ministry of SMEs and Startups Completed
Inter-ministerial Consultations and Legislative Proposal Targeted Within the Year
Value-added Effects Expected, Including Job Creation and Economic Revitalization

A special law aimed at supporting third-party business succession for domestic small and medium-sized enterprises (SMEs) is set to be actively pursued. This is expected to broaden the options for domestic SMEs that have been considering selling or closing their businesses due to the lack of suitable heirs or a desire not to pass the business on to their children.

A worker is working at a clothing manufacturing company. Photo by Asia Economy DB

According to the government on July 16, the Ministry of SMEs and Startups recently completed a research project through the Korea Capital Market Institute to prepare a special law on third-party business succession, and has finished the final review process. Based on the results of this research, the ministry plans to consult with relevant ministries and draw up a concrete legislative proposal within the year.

An official from the Ministry of SMEs and Startups stated, "The research has comprehensively organized the current status of the domestic mergers and acquisitions (M&A) market and the demand for business succession policies," and added, "We are currently collecting internal working-level proposals and will move forward with the legislative process in consultation with relevant ministries as soon as possible."

The core of the special law on third-party business succession is to expand the concept of business succession, which has so far focused on family succession, to include 'third parties,' with government support as a key component. The current SME Promotion Act defines business succession as 'the transfer of ownership or management rights to relatives through inheritance or gifting.' Due to this narrow, family-centered definition, the government intends to assist companies facing difficulties with third-party succession through measures such as tax relief, professional consulting, and streamlined procedures.

According to a survey conducted earlier this year by the Korea Federation of SMEs targeting domestic SMEs with over 10 years of business history, 27.5% of respondents said they 'have no plans for succession to their children or have not yet decided,' and 30.2% responded that 'if not succeeded by their children, they would consider selling or closing the business in the future.'

An industry official commented, "It was naturally expected that children would inherit the business, but there are many cases where children refuse succession to pursue other careers, or business owners consider selling because they do not want to burden their children with the heavy responsibility of running a company. If the government supports SMEs that are unable to determine a successor and are considering giving up their business, I believe it could help create an ecosystem where 'century-old companies' with deep history and tradition can take root and grow across various regions."

Experts believe that if the special law is enacted in the future, third-party business succession through the recruitment of professional managers or M&A will become more active among domestic SMEs. According to the Korea Capital Market Institute, the number of domestic companies wishing to succeed their businesses through M&A is estimated at 220,000.

Choi Sujeong, a research fellow at the Korea Small Business Institute, said, "As the average age of domestic SME owners rises, the issue of business discontinuation due to the absence of successors will become even more prominent in the future." She advised, "Rather than simply providing financial support, the government should focus on broadly supporting the transfer of business philosophy and technology to the next generation through professional consulting and successor training, as is done in Japan." She added, "If a government support system for third-party business succession among SMEs is established, it is also expected to have significant value-added effects such as job creation and economic revitalization."