Companies Previously Excluded Can Now Be Recognized as Startups... Startup Recognition Standards to Be Eased

Temporary Exclusion Grounds Can Be Resolved Later
Startup Status Granted If Requirements Are Met Within Seven Years

Companies that were excluded from being recognized as startups at the time of business commencement due to not meeting certain requirements will now have the opportunity to be acknowledged as startups if they later fulfill those conditions.

The Ministry of SMEs and Startups announced on December 16 that the Cabinet has approved a partial amendment to the Enforcement Decree of the Support for Small and Medium Enterprise Establishment Act, which will allow companies excluded from startup status at the time of business commencement to be recognized as startups once the reasons for exclusion are resolved.

The current legislation defines a startup as the establishment of a new small or medium-sized enterprise. To prevent duplicate benefits from startup support programs, Article 2, Paragraph 1 of the Enforcement Decree of the Support for Small and Medium Enterprise Establishment Act specifies the grounds for exclusion from startup status.

However, because the grounds for exclusion have been determined solely based on the business commencement date, companies excluded from startup status at that time due to temporary circumstances or a lack of understanding of the law were unable to be recognized as startups later on. There have been calls from the field to relax these standards to better suit the realities of the startup ecosystem, where business models and new company formations frequently change.

The Ministry of SMEs and Startups has improved the system so that for Article 2, Paragraph 1, Subparagraphs 2, 4, and 5 of the Enforcement Decree, which can be resolved after business commencement, a company will be recognized as a startup from the date the reason for exclusion is resolved, provided this occurs within seven years from the business commencement date. The recognition period as a startup remains seven years from the business commencement date.

The amended Enforcement Decree will take effect on January 1 of next year. It will also apply to small and medium-sized enterprises that commenced business before the amendment takes effect, as long as seven years have not passed since their business commencement. However, to avoid confusion, even if the grounds for exclusion were resolved before the effective date, startup status will only be recognized from the date the amendment comes into force.

Meanwhile, regarding the succession of startup status in the event of a change in company type, which was included in the legislative notice, it has been clarified through interpretative guidance that as long as the legal identity of the corporation is maintained under the Commercial Act, there is no need for a separate legal amendment. In such cases, the business commencement date will be determined based on the date of the initial corporate registration.