Excessive Securities Price Adjustment for IPO Failures to Be Restricted

Amendment to the Venture Investment Act
Passed at Cabinet Meeting
for a Fair Venture Investment Environment

When a venture investment association signs an investment agreement, it will no longer be permitted to impose unfair contract terms, such as excessively adjusting securities prices, simply due to the failure of an initial public offering (IPO).

The Ministry of SMEs and Startups announced that a revision to the 'Act on the Promotion of Venture Investment,' which prohibits the provision or acceptance of money or valuables by major shareholders of venture investment companies and bans the execution partners of venture investment associations from entering into unfair investment agreements, passed the Cabinet meeting on the 22nd.

This amendment to the Venture Investment Act establishes a basis for restricting unfair contract terms that place excessive burdens on investee companies when venture investment associations sign investment agreements. Specifically, it will restrict unfair terms such as early retrieval of investment funds for changes in management performance indicators without legitimate reason, early retrieval of investment funds without a grace period, and excessive securities price adjustment (refixing) on the grounds of IPO failure. If unfair contract terms are set in an investment agreement, the law now allows those terms to be invalidated and for administrative penalties to be imposed, thereby enhancing the effectiveness of regulations to protect investee companies.

In addition, acts where the major shareholders of venture investment companies provide or accept money or entertainment in order to exercise undue influence over the company are now prohibited, thereby reinforcing the independence and transparency of venture investment company management. The amended Venture Investment Act, which passed the Cabinet meeting, will be promulgated on September 29 and take full effect from March 30, 2027, with relevant subordinate regulations to be revised before implementation.

No Yongseok, First Vice Minister of the Ministry of SMEs and Startups, stated, "This amendment will serve as an opportunity to further strengthen the fairness of decision-making and investment agreements in venture investment," adding, "We will continue to communicate with the industry and provide support and regulatory improvements needed to build greater trust in the venture investment market."

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