Government legislation ministry clarifies startup status for firms with majority corporate ownership

The Ministry of Government Legislation said Tuesday that established corporations and their executives can regain startup status for subsidiaries they majority-own if a loss of executive position or share transfers reduces their combined stake to 50 percent or less. The interpretation addresses ambiguities in the revised Enforcement Decree of the Startup Support Act, which took effect Jan. 1, 2026.

Under the new rules, a subsidiary founded with more than 50 percent ownership by an existing corporation and its officers is normally excluded from being classified as a startup. However, this exclusion can be lifted within seven years if the combined shareholding drops to 50 percent or below because an officer loses their position or shares are sold to original founding shareholders.

The ruling hinges on whether the reduction in ownership stems directly from a decrease in the existing corporation's influence. A firm does not qualify if officers sell shares to third parties to drop below the threshold before an officer loses their position, as the reduction is not attributed to the change in office. Conversely, status is granted if the shareholding falls to 50 percent or less specifically because an officer subsequently loses their position, even if it remained above the limit after a prior third-party sale.

Startup recognition is also allowed if shares were previously sold to third parties and later repurchased to exceed the 50 percent limit, provided the stake eventually drops back due to an officer losing their position. In these cases, the company is recognized as a startup from the date the disqualifying factor is resolved, retaining eligibility for the remainder of the original seven-year period.

The Ministry of SMEs and Startups requested the clarification to align the law with frequent business model changes and new company formations in the field. Cho Kyung-won, director for startup policy at the Ministry of SMEs and Startups, said, "Through this revision of the enforcement decree, we expect a stable growth foundation to be established for companies that had been excluded from various startup support projects."

The interpretation was issued on June 9 in response to inquiries about whether specific sequences of share transfers and executive departures constitute a resolution of exclusion criteria. Under the amended decree, any small or medium-sized enterprise that started business before Jan. 1, 2026, but has not yet passed seven years since its launch, is eligible for the revised classification once the exclusion cause is removed.