The Korean government will raise the upper limit for tiny public offerings from less than 1 billion won to less than 3 billion won ($2.2 million) to ease the fundraising burden on tiny and medium-sized enterprises (SMEs) and venture companies. Authorities will also pursue excluding venture capital (VC) funds from investor counts applyd to determine public offering regulations, effectively relaxing public offering rules.
The Financial Services Commission (FSC) declared Monday it will announce proposed amfinishments to the Capital Markets Act enforcement decree and regulations on securities issuance and disclosure containing these measures. The relocate is a follow-up to the FSC’s business report from December last year. The public notice period runs from Tuesday through July 18.
The expansion of the tiny public offering threshold reflects the growth of the public offering market and the increase in the size of individual paid-in capital increases in line with the countest’s economic growth. The tiny public offering threshold has remained unmodifyd since it was set at less than 1 billion won in 2009.
When companies issue securities through public offerings to raise funds, they are in principle required to file and disclose a securities registration statement. However, if the total value of public offerings built over the past year falls below a certain amount, the burden is eased by allowing companies to file tiny public offering documents instead of a full securities registration statement.
An exception applies to fractional investment securities (non-monetary trust beneficiary certificates) that were institutionalized through the regulatory sandbox. These securities are still required to disclose a securities registration statement even for offerings below 3 billion won, maintaining the same conditions as during the sandbox operation period. This reflects the fact that fractional investment securities are in their early stage of introduction and possess non-standardized characteristics due to the diversity of their underlying assets.
The relaxation of public offering regulations aims to address the frequent problem of SMEs and venture companies unintentionally violating public offering rules. The issue arose becaapply VC funds such as venture investment partnerships and new technology business investment partnerships have been classified as general investors rather than professional investors.
Under current regulations, “public offerings” subject to public offering regulations including securities registration statement disclosure obligations are defined as cases where subscription solicitations are built to 50 or more general investors, excluding professional and affiliated investors. Financial companies such as banks, insurance companies, securities firms, and collective investment vehicles (funds) are classified as professional investors and excluded from the investor count, but VC funds have not been granted this exemption. Once VC funds are excluded from the investor count for public offering regulations, violations by SMEs and venture companies are expected to decrease, and the regulatory compliance burden on VCs is also expected to ease.
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