Sole proprietors who close a business and relaunch in the same sector will be recognized as a "startup" after just one year — down from the current three — making them eligible for government startup support programs.
The Ministry of SMEs and Startups said Tuesday the Cabinet approved an amendment to the enforcement decree of the Small and Medium Business Establishment Support Act that shortens the non-recognition period for same-sector re-entry following closure.
Under current law, establishing a new small or medium-sized enterprise is defined as a "startup," but certain cases are excluded from that definition to prevent double-dipping in government support programs.
One such exclusion applied when a sole proprietor closed an existing business and then set up a new individual or corporate entity in the same sector. Under the old rule, three years had to pass before the new venture could be recognized as a startup and access government support.
The ministry determined that the three-year gap no longer fits the pace of today's business environment. Critics had argued that as AI and technology convergence accelerate industrial change, an excessively long waiting period prevents entrepreneurs from quickly applying experience gained from a previous venture.
The ministry's 2025 Survey on Startup Companies found that the average preparation time for re-entering the same sector was 10.8 months. Taking that figure into account, the ministry decided to cut the non-recognition period from three years to one.
Once the change takes effect, entrepreneurs who relaunch in the same sector will qualify as a startup after one year and gain access to government support programs. The revision is expected to improve access for founders who want to try again in the same field, drawing on the experience, technology and know-how from a previous business.
The amended decree takes effect in September. Companies that have already started operations before the effective date will also benefit from the revised startup recognition standard, provided they are within seven years of commencing business.
The change is expected to help entrepreneurs return to market more quickly. In a fast-moving technology and market environment, a three-year gap could erode the practical value of experience and know-how built up in a prior venture.
Industry observers expect the reform to accelerate the pace at which founders with a failed business can try again. For those re-entering the same sector, shortening the waiting period is seen as critical because they can draw on technology, client relationships and market experience accumulated during their previous operations. With the time to startup recognition reduced, entrepreneurs will be better positioned to make a fresh attempt before that accumulated knowledge fades.
"Through this amendment, we expect to minimize the gap after failure, revitalize re-entrepreneurship and foster a virtuous cycle in the startup ecosystem," said Jo Gyeong-won, director of startup policy at the Ministry of SMEs and Startups. "We will continue to improve the system to promote entrepreneurship by reflecting the voices from the field."
boo@heraldcorp.com
