Government legislation ministry rules combined stakes count for overseas startup status

The Ministry of Government Legislation ruled that Korean nationals who jointly establish a corporation abroad may aggregate their individual shareholdings to determine if they hold the status of major shareholders under the Startup Promotion Act.

The interpretation, issued on the 26th in response to an inquiry from the Ministry of SMEs and Startups (case number 26-0436), clarifies a key requirement for recognizing "overseas startups." The question centered on whether the major shareholder condition under Article 2-2, Paragraph 2 of the enforcement decree should be assessed based on a single founder's holdings or the sum of all Korean co-founders' equity.

The ministry concluded that the term "Korean national" in the relevant enforcement decree refers to a collective concept encompassing all individuals holding Korean citizenship, rather than a specific person. This definition serves as a counterpart to "foreigners" and does not limit substantive control to one individual.

"Viewing 'Korean national' as a collective concept corresponding to foreigners, rather than a specific individual, aligns with the wording of the decree," a company official stated regarding the interpretation.

The ministry reasoned that restricting the assessment to a single founder could lead to unreasonable outcomes where the combined stake of Korean co-founders exceeds that of foreign investors, yet the entity fails to qualify for overseas startup status. Such a result would contradict the law's purpose of fostering a startup ecosystem capable of producing global leading companies.

Furthermore, the ministry noted that even if the criteria are interpreted broadly to include aggregated shares, the risk of abuse remains low. Entities must still satisfy additional requirements under the act to be classified as "overseas startup companies" eligible for support programs.

Based on this finding, the Ministry of Government Legislation recommended revising the Enforcement Decree of the Startup Promotion Act. The proposed revision would explicitly stipulate the criteria for aggregating shares and determining major shareholder status among co-founders to prevent future ambiguity.