Gov't to extend startup support by up to 5 years for military service, childbirth breaks

Startup founders who are forced to suspend operations due to unavoidable circumstances such as military service or childbirth will be able to receive government startup support for up to five additional years under a new plan. The government also intends to lower the bar for early-stage startups to participate in research and development projects and streamline the process for lifting bank account transaction limits.

The Ministry of SMEs and Startups said Friday it presented and discussed the "startup regulatory rationalization plan" at the second plenary session of the Regulatory Rationalization Committee.

The plan was drawn up to improve regulations across the full lifecycle of a company — from founding through growth to re-entry. The ministry said it worked with related ministries, including the Office for Government Policy Coordination, the Financial Services Commission and the Ministry of Employment and Labor, to identify a total of 10 regulatory reform tasks.

South Korea ranks within the top 20 globally in overall startup ecosystem rankings, but its business environment — covering regulations and administrative procedures — lags at 32nd. The government noted that startups in particular struggle to navigate various regulations due to a lack of specialized personnel and regulatory information.

The reforms focus on addressing the distinct challenges startups face at each stage of growth. In the early stage, participation requirements for government support projects and financial transaction regulations will be eased. During the growth phase, the burden associated with attracting investment and preparing for a stock listing will be reduced. The plan also aims to build an institutional foundation that allows startup experience to lead to new ventures, by expanding re-startup support and broadening the scope of recognized career credentials for those who have experienced business failure.

The first measure extends the period during which founders can receive startup support, taking into account business gaps caused by military service or childbirth.

Under the current Small and Medium Business Establishment Support Act, a company is recognized as a startup if it is less than seven years old. There has been no exception for founders who suspend operations due to unavoidable reasons such as military service or childbirth, effectively cutting them off from government support.

The government plans to introduce a special exemption allowing founders who experience such business gaps to participate in startup support programs for up to five additional years on top of the existing seven-year recognition period.

Restrictions on early-stage startups applying for government R&D projects will also be eased. Currently, companies with high debt ratios or in a state of complete capital impairment may be barred from applying. Going forward, financial soundness will be applied as a selection evaluation criterion rather than a prerequisite for application for startups less than three years old.

Companies established by startup accelerators that have invested at least a 50 percent stake will also be recognized as startups. The move is intended to promote the "venture studio" model of entrepreneurship, in which accelerators provide specialized personnel and capital to co-found companies alongside prospective founders.

Measures to improve the financial and investment environment for startups are also being pursued. When a new bank account is opened, daily transfer limits are currently set at 1 million won ($755) for ATM withdrawals, 1 million won for electronic financial transactions and 3 million won for over-the-counter transactions, as a fraud prevention measure.

To lift these restricted account limits, account holders must submit documentation proving the purpose of their transactions, but the required documents and standards vary by bank and branch, causing difficulties for early-stage startups.

The government plans to revise joint financial sector guidelines and add credible verification requirements — such as a record of selection for a government startup support project — so that startups can have their transaction limits lifted more quickly.

Regulatory improvements to boost venture investment are also planned. Previously, extending the maturity of a sub-fund backed by the Korea Fund of Funds required the unanimous consent of all investors. The standard agreement will be revised to allow extensions with only a certain level of consent.

The range of recognized investment institutions and products that allow privately funded companies to obtain venture company certification will also be expanded. The number of eligible categories will increase from 21 to 23, with plans to gradually extend recognition to asset management firms as well.

Administrative burdens on companies preparing for technology-based special listings will be reduced. When undergoing technology assessments from multiple specialized evaluation agencies, companies will be provided with common submission materials and standardized forms to ease the burden of preparing duplicate documents.

The support framework will also be restructured to allow founders to use their experience of business failure as a springboard for a second attempt. The government will reform the "good-faith management evaluation" system, which assesses whether re-startup applicants engaged in any dishonest conduct during their previous business. The evaluation approach will be revamped to place greater emphasis on efforts to recover and demonstrate sincerity rather than on technological viability, and special re-startup support exemptions will first be applied across all Ministry of SMEs and Startups programs before being extended to related ministries.

The scope of what qualifies as a startup will also be broadened. Currently, if an existing business operator starts a new business, it may be excluded from startup support if deemed a continuation or expansion of the existing business.

Going forward, cases such as a sole proprietor adding a new business in a different industry while maintaining an existing one, or a corporate officer independently establishing a new corporation, will be recognized as startups.

A system to formally recognize entrepreneurial experience as official career credentials will also be introduced. A new issuance framework — tentatively named the "challenge and startup career certificate" — will be established to verify records such as a corporate representative's career history and startup preparation activities conducted through government support programs, and will be linked to the Ministry of Employment and Labor's integrated career certification service.

The Ministry of SMEs and Startups also plans to establish a dedicated "startup and venture regulatory innovation committee" under the Regulatory Rationalization Committee, with participation from private-sector experts and related ministries, to continue improving regulations in emerging industries.

The ministry will operate a regulatory innovation network with private-sector associations and organizations, and will pursue a range of additional initiatives — including advance regulatory review through a public startup project, a joint startup regulatory demonstration project, and a wide-area linked regulatory-free zone program.