(1) Reasons for Proposal

In accordance with the introduction of the Support for Small and Medium Enterprise Establishment Act amended as a public institution preferential purchase system for startup products, this Amendment aims to define the target percentage of preferential purchases by public institutions as prescribed by Presidential Decree, the effective period of the startup certificate, and the business startup certification procedure, reorganize the scope of business startups in line with the digital era, specify the composition and function of the Business Startup Policy Council, improve the charge exemption application procedure for startups, and overhaul other matters to ensure efficiency in supporting startups.

(2) Major Provisions

A. Implement a public institution preferential purchase system for startup products (Articles 5-8 and 5-9 of the Enforcement Decree)

① (Target purchase percentage) Comprehensively consider promoting the purchase of startup products and ensuring product choices for public institutions.

- Set the target purchase percentage as “8%” based on the average total purchase amount of public institutions for startup products in the last five years.

* Target public purchase percentage: (Female-owned business) 5% for goods or services and 3% for construction under Article 7 of the Enforcement Decree of the Act on Support for Female-owned Businesses; (enterprise owned or operated by a person with a disability) 1% under Article 7-2 of the Enforcement Decree of the Act on the Facilitation of Entrepreneurial Activities of Persons with Disabilities

② (Business startup certification procedure) Define the certificate’s effective period (3 years) and specify the sanction period for those whose business startup certification is revoked as well as the certification of a business startup. 

* (Effective period) 1 year for small and medium enterprises, 3 years for female-owned businesses, and 3 years for enterprises owned or operated by persons with disabilities

- Establish and operate the certification system to certify business startup and define entrusting the notification of details in the certification procedure.

B. Clarify and expand the scope of business startup (Articles 2 and 3 of the Enforcement Decree)

① (Scope of business startup) Delete “business succession,” which is an unclear concept, and clarify what type of business commencement by succession is excluded from business startup.

* ① Commence business with an inheritance or gift, ② Establish a corporation with the sole proprietor holding 30% or more of its shares or being the largest shareholder, and ③ Establish another corporation with the corporation being the largest capital contributor and holding 30% or more of its shares.

- Set the post-closure startup recognition period (3 years; 2 years for insolvency or bankruptcy) to address unreasonableness in the current system that does not recognize a business startup if the same type of business is reopened after closing a business.

- In order to recognize various business models in the digital era as a business startup, use “sub-classes” under the Korea Standard Industrial Classification as the criteria to determine whether it is the same type of industry. 

② (Disclosure of the commencement date of business) For the commencement date of the sole proprietor before converting into a corporation and a corporation before changing its organization type, disclose the commencement date of the enterprise after such change.

C. Specify the composition and function of the Business Startup Policy Council (Articles 8-2 and 8-3 of the Enforcement Decree)

① (Composition) Increase the number of its members (20 → 25) and designate high-ranking public officials from the relevant central administrative agencies or startup experts as its members.

② (Function) Include in the Council’s functions matters requiring mutual cooperation to prepare collaboration measures (projects) and improve unreasonable regulations to discuss between Ministries.

D. Others (Articles 29-2 and 32 of the Enforcement Decree, and Articles 2 and 18 of the Enforcement Rule)

① (Simplify the procedure) Require the head of a Si/Gun/Gu to request a charge exemption to multiple responsible agencies on behalf of a startup applying for exemption from charges.

② (Entrust) Prepare the basis for entrusting startup certification to the Korea Institute of Startup and Entrepreneurship Development.

③ (Delete the business separation requirement) Delete the provision delegated to the Enforcement Rule, as separating some part of a business to create a startup was deleted from the scope of business startups in the Enforcement Decree.

④ (Use administrative information) Add a public institution preferential purchase system for startup products as the administrative information use project and register business startup certification as administrative information.