SMEs ministry passes bill to curb unfair venture capital practices

The SMEs ministry said Tuesday that the State Council approved revisions to the Venture Investment Act aimed at fostering a fairer investment culture. The amended law prohibits major shareholders of venture capital firms from offering or accepting money and other benefits to exercise undue influence over management decisions.

It also bans general partners of venture investment unions from signing unfair contracts and establishes grounds for administrative penalties. Specific prohibited conditions include demanding early repayment of funds due to fluctuations in business performance metrics without just cause or requiring such repayment without any grace period.

The legislation further restricts the practice of excessively adjusting security prices solely because a company fails to complete an initial public offering. If such unfair terms are included in an agreement, the new law renders those specific conditions void.

The revised act is scheduled to be promulgated on September 29 and will take full effect on March 30, 2027.

To prepare for these changes, the agency has operated a public-private forum to review unreasonable clauses and unfair cases. It also revised and distributed standard venture investment contract templates and explanatory guides on June 30.

Noh Yong-seok, the first vice minister serving as acting head of the ministry, said the revision would serve as an opportunity to strengthen fairness in venture investment decision-making and contracts. He added that the ministry would continue communicating with the industry to provide necessary support and improve institutions.