The National Assembly is pushing legislation to reduce the so-called "growth penalty," under which companies lose existing benefits as they expand. [Ministry of SMEs and Startups]
The National Assembly is pushing legislation to reduce the so-called "growth penalty," under which companies lose existing benefits as they expand. [Ministry of SMEs and Startups]

Lawmakers Ahn Cheol-soo, Jang Cheol-min introduce bills to ease support cutoffs tied to company growth

Proposals include preserving stock option privileges for venture firms, introducing 5-year graduation deferral for mid-sized companies

Lawmakers are pushing legislation to ease the so-called "growth penalty" — the loss of government support that companies face when they expand from small and medium-sized enterprises into mid-sized firms, or from mid-sized firms into large corporations. The bills aim to address what critics call "Peter Pan syndrome," in which companies deliberately avoid growing to retain government support. Both ruling and opposition party lawmakers have introduced related bills, and the government is separately pursuing a plan to phase out tax benefits gradually as companies grow.

According to the National Assembly's bill information system, Democratic Party of Korea lawmaker Jang Cheol-min introduced a bill Friday to amend the Special Act on Promoting Growth and Strengthening Competitiveness of Mid-Sized Enterprises. The centerpiece of the bill is a "graduation deferral" system that would allow companies to retain their mid-sized enterprise status for five years even after their scale exceeds the threshold for that classification.

The bill also includes provisions to extend some privileges currently available only to small and medium-sized enterprises to mid-sized firms, and to allow the establishment of a guarantee account to support mid-sized companies' fundraising. The proposal aims to reduce support gaps not only during the transition from small and medium-sized to mid-sized status, but also when mid-sized companies grow into large corporations.

People Power Party lawmaker Ahn Cheol-soo proposed in a bill introduced Friday that venture companies retain special privileges — including the ability to grant stock options — even after growing into mid-sized enterprises. [Yonhap]
People Power Party lawmaker Ahn Cheol-soo proposed in a bill introduced Friday that venture companies retain special privileges — including the ability to grant stock options — even after growing into mid-sized enterprises. [Yonhap]

People Power Party lawmaker Ahn Cheol-soo also introduced a bill Friday to amend the Special Act on Fostering Venture Businesses. The bill would allow venture companies that grow into mid-sized enterprises to retain special privileges related to granting stock options and acquiring treasury shares to fulfill performance-based share award agreements.

Under current law, a venture company must meet the requirements for small and medium-sized enterprise status. If a company's sales or assets grow beyond the SME threshold, its venture company certification is revoked and related privileges no longer apply. Ahn believes the share-compensation privileges should be preserved so that companies can continue to attract top talent even after growing beyond SME status.

The government is also pursuing regulatory reforms to reduce abrupt support cutoffs tied to company growth. The 2026 tax reform package announced in August included plans to introduce a gradual phase-out structure for the special tax reduction for small and medium-sized enterprises and for tax credits on production costs for video and webtoon content. The measure is intended to ease the burden of companies losing tax benefits all at once as they grow. Because the reform requires amendments to relevant laws, the final scope of its application will depend on the outcome of National Assembly review.

The government had earlier extended the SME graduation deferral period from three years to five and raised the sales thresholds by industry to ease the burden of scaling up. However, concerns have persisted that additional reforms are needed, as companies continue to lose support and privileges granted under individual laws once they graduate from SME status.

Corporate growth has slowed in recent years. According to business demographic statistics released last month by the Ministry of Statistics, the number of high-growth companies last year fell to 4,534 — a decline of 855, or 15.9 percent, from the previous year. Among high-growth companies, so-called gazelle companies — those four to five years past their business registration — also dropped to 1,146, down 208, or 15.4 percent, from the year before. It has not been confirmed, however, whether the decline in high-growth companies resulted from reduced support programs.

The number of mid-sized enterprises, meanwhile, continues to rise. According to the 2024 Mid-Sized Enterprise Basic Statistics released by the Ministry of Trade, Industry and Resources, the number of domestic mid-sized enterprises reached 6,474, up 606, or 10.3 percent, from the previous year. Some 1,275 companies entered mid-sized status through SME graduation and new establishment, while 669 exited the category due to growth into large corporations, reversion to SME status, or suspension or closure of operations.


hong@heraldcorp.com