Small and midsize businesses in South Korea are disappearing — and not only because they are losing money. Even profitable firms with strong technology are shutting down. Owners are aging, there is no successor, and even when they try to sell to a third party, suitable buyers often do not emerge. Discussion of a proposed “special act on business succession,” raised by the Democratic Party’s Euljiro Committee, starts from that reality. The direction is right, but whether the prescription is sufficient needs scrutiny.
The first question is the cause. Labeling the closure of profitable companies as a simple “policy failure” is too narrow. It is true that tax benefits for third-party acquisitions lag those for family succession, and that is a real barrier. But it is not the whole story. Many small manufacturers face low margins, unstable trading relationships and heavy reliance on domestic demand. A company may show a profit on paper, but if its growth prospects are unclear, outside investors’ reluctance is a market judgment.
That means the succession problem is not only about taxes; it is about the industrial ecosystem. Cutting taxes alone will not solve it. A structure that can generate profits and a market that can support growth must be built alongside any tax relief. Otherwise, tax incentives will be only a temporary fix.
Even so, a special act on business succession is needed. With family succession increasingly difficult, keeping companies alive through third-party acquisitions is a practical alternative. From the standpoint of preserving technology and jobs, mergers and acquisitions are a far better option than closure. Tax support comparable to family succession and simplified procedures should be pursued. The point is that these steps are necessary, but not sufficient.
Foreign examples also need to be used carefully. Germany’s competitiveness among midsize firms is not simply the result of “passing companies down through generations,” but of long-term investment, stable business relationships and strong technological capabilities. A family-succession model and a third-party M&A model work differently. South Korea cannot simply copy Germany and must design a succession model that fits local conditions.
Another challenge is balancing speed and protection. The longer a succession takes, the more a company’s value can fall, so streamlining procedures and speeding transactions matters. At the same time, safeguards are needed to prevent technology theft. These goals can conflict. A practical approach is to limit access to information early and institutionalize step-by-step deal structures in which core technology is disclosed only after a certain level of trust is secured. Achieving both speed and protection requires more precise design, not just fewer steps.
The biggest issue comes after the acquisition. The goal of the proposed law is not merely more deals, but the preservation of technology and jobs. Private investors, however, act for profit, not public interest. The risk cannot be ruled out that a buyer could take tax benefits, acquire a company, then strip key assets and cut staff. To prevent that, post-deal oversight is essential, including clear requirements to maintain employment for a set period, limits on overseas leakage of core technology, and conditions for clawing back tax benefits in stages.
In sum, a special act on business succession is needed, but it is not enough on its own. Tax support, procedural reform, technology protection and post-deal management must be designed as a single package. Beyond that, policies must also create a market environment in which small and midsize businesses can grow. Emphasizing succession without fair trading structures and stable profit foundations is like trying to grow a tree without roots.
South Korea’s economy may appear to be holding up, but its industrial base is weakening. If small and midsize businesses collapse, large companies cannot hold out either. Business succession is not a problem of individual firms; it is directly tied to the sustainability of the broader industrial system.
Politics cannot afford further delay. But rushing is not enough, either. The direction is right, and the design must be more precise. Keeping companies going is not simply inheritance; it is protecting the industrial foundation.
* This article has been translated by AI.
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