How to Obtain a Small Business Confirmation Certificate & Required Documents — What if it was rejected due to related company determination?

3-Line Summary

The Small and Medium Enterprise Confirmation Certificate is applied for online through the Small and Medium Enterprise Status Information System. It considers both scale (sales and assets) and independence (whether it is controlled by another company).

If another corporation holds a large stake in our company, its scale may be combined (affiliated company). The determination is based on the shareholder composition as of the end of the previous business year, not the application date.

If the determination is incorrect, correct the documents that caused the error and apply again. Most support programs require a valid confirmation certificate as of the application deadline, so you need to work backward from the date.

Table of Contents

Two Ways to Interpret the Affiliated Company Clause
16 Days Before the Smart Factory Support Program Deadline
The 40% Shareholding Ratio Stated in the Determination Notice
The Basis Date is December 31st of Last Year, Not the Application Date
Four Documents to Prove Capital Increase
To Dispute or Reapply
Reapplication, Certificate Issuance, and Support Program Application
Administrative Agent (administrative scrivener) Office Services and Checklist

I am an administrative agent (administrative scrivener) based in Songdo, Incheon. When dealing with corporate certifications and support project documents, I often see the same clause interpreted in two different ways.

Article 2 of the “Small and Medium Enterprise Basic Act” defines the scope of small and medium enterprises. You must meet both scale criteria such as sales and assets, and independence criteria regarding whether or not you are controlled by a larger company, to be recognized as a small and medium enterprise. There is a related company provision within the independence criteria. If a company subject to external auditing has a certain percentage or more of the shares of another company and the largest shareholder becomes the controlling shareholder, the two companies are considered to have a controlling and subordinate relationship, and their scale is combined. Generally, having more than 30% of the shares and being the largest shareholder is the standard, and the method of combination varies depending on the shareholding ratio.

The clause itself is not difficult. The problem is “whose shareholding are you looking at?” The shareholding that the representative thinks and the shareholding that the system reads can be different.

This case was the same. The representative believed, “Our company is already independent,” while the assessment notice stated, “It is still subordinate.” Both had grounds for their claims.

2. 16 Days Before the Smart Factory Support Project Deadline

The client was the representative of a small company printing food packaging film in the Incheon Namdong Industrial Complex. Four years after founding the company, there were 17 employees. The representative, a woman in her late 30s, had been working mornings at the factory and afternoons visiting clients after returning from maternity leave last spring.

The company had one issue. Part of the initial capital was invested by the packaging fabric manufacturing corporation run by her father. That corporation was subject to external audits due to its large sales volume. The representative had been relying on her father’s company’s orders to keep the factory running for several years, and she wanted to become independent. Therefore, last fall, the representative and the factory manager invested funds in a paid-in capital increase (capital increase).

This year, a large food company required automatic inspection equipment for printing defects as a new supply condition. It was difficult for the representative to afford the equipment alone, so she decided to apply for the Smart Factory Construction Support Project. The announcement stated that a “valid SME confirmation certificate as of the application deadline” was a required document.

The representative applied for the certificate directly through the SME Status Information System. The results came out about ten days later. “As a result of the related company aggregation, it does not qualify as an SME.”

The first thing to arrive at the office was an email. It contained a screenshot of the judgment notification screen, the announcement PDF, and a single line of text: “16 days left until the deadline.” On the reserved Thursday afternoon, the representative brought the company’s corporate seal and file box.

3. The 40% Equity Ratio Stated in the Judgment Notification

I read each reason for the determination line by line. My father’s company was listed as the controlling company, and 40% was entered in the shareholding percentage box. “Applicable” was marked in the box for whether or not they were the largest shareholder.

The representative shook his head. He explained that after the capital increase, my father’s company’s shareholding was reduced to around 26%, and that he himself was the largest shareholder. The corporate registry also showed that the capital increase registration was completed in November last year.

Then, where did the 40% come from?

I checked each file uploaded during the application. The cause was the shareholder register. The shareholder register uploaded by the representative was the register created at the time of establishment. The employee in charge of accounting left at the beginning of this year, and the folder organization stopped, and the representative uploaded the file at the top of the files named “shareholder register.” The new register created after the capital increase was separately stored in a subfolder called “related to capital increase” within the same folder.

The system judged based on the received documents. The assessment by the responsible agency was wrong, but the data used for the assessment was outdated.

4. The reference date is not the application date but December 31st of last year

There was one more thing to check here. Whether the timing of the capital increase was before the reference date.

The relationship between related companies is based on the shareholder composition as of the end of the previous business year, not the shareholder composition on the date of application. If applying this year, the percentage held by each person as of December 31st of last year is the standard. If the capital increase took place in January of this year, the assessment would not have changed even if the register was replaced.

Therefore, I checked the dates in three categories:

Date of paid-up capital: The date the capital increase funds were deposited into the company’s bank account
Date of capital increase registration: The date the change was recorded in the corporate registry
Date of shareholder register creation: The date the new register was created after the capital increase

All three dates were between October and November last year. They were before the reference date of December 31st. Therefore, as of the reference date, the father’s company’s equity is less than 30%, and he is not the largest shareholder. It does not meet both requirements for a related company.

With this confirmation, what needed to be done was determined. What needed to be corrected was not the legal interpretation but the submitted documents.

5. Four documents to prove the capital increase

It seems like it would only take changing just one page of the shareholder register to be done, but I didn’t do that. Because the shareholder register is a document that the company prepares itself, simply submitting a new register would leave a question of, “Isn’t this a correction after the ruling?” It was necessary to have external records to support the date and amount.

Therefore, I prepared the following four items as a set:

Certificate of Corporate Registration Details: This shows the details of the capital increase registration, the registration date, and changes in the total number of issued shares.
Shareholder Register After Capital Increase (as of the base date): This includes the date of preparation, the number of shares and equity ratio per shareholder, and the company seal.
Evidence of Paid-in Capital: This includes the transfer history of the representative and factory manager, and the company’s bank deposit history.
Statement of Changes in Stock Submitted with Corporate Tax Return: This is a document to confirm that changes in stock during the previous business year were reflected in the company’s settlement data.

The representative sent me the statement of changes in stock from the company’s settlement data. Fortunately, the capital increase was properly reflected. If the settlement data and shareholder register had been different, simply correcting the register would not have been enough to explain it.

There was also a small incident. While the factory manager was looking for the transfer history, he showed me a photo from his mobile phone’s photo album of a cake that the employees shared on the day of the capital increase. The cake had the words “Welcome, Shareholders” written in chocolate. It wasn’t included in the documents, but that photo was the fastest way to remember the date.

6. To Dispute or Reapply

The options were two. The path of requesting a reconsideration of the decision, and the path of applying anew from the beginning with correct information.

If there was a mistake in the decision itself, the challenging party is correct. However, this decision was made exactly according to the submitted information. What was wrong was the information. In such cases, it is faster to correct the information and apply anew than to challenge the decision, and there is no reason to argue with the responsible agency.

The remaining issue was time. There were 16 days until the deadline, and it usually takes 1-2 weeks to process the confirmation. If a supplementary request came even once, we could have missed the deadline. So, we decided on two things.

We first block the places where a supplementary request might come. We organized the shareholder register date, registration date, and paid-up date into a table to ensure they match and submitted them together. We eliminated the need for the officer to check the dates back and forth between the three documents.
We briefly describe the reason for reapplying. “In the previous application, the shareholder register before the capital increase was mistakenly submitted, and we are submitting the shareholder register and supporting documents as of the base date.” We ended the explanation with these two sentences. We did not write about circumstances such as the relationship with our father’s company or the process of independence, as it was not necessary for the decision.

We also checked the remaining documents for the application announcement on the same day. The business plan was being written by the CEO together with a facility company, and our office ensured the application form format and the list of attached documents, and the submission order were correct. We prepared all the remaining documents in advance so that they could be submitted as soon as the confirmation letter is issued.

7. Reapplication, Confirmation Letter Issuance, and Application Submission

The resubmission was entered the morning after the consultation. The representative logged in with a digital certificate and uploaded the prepared files in order.

9 days later, the certificate was issued. The “Classification” field stated “Small Business.” There were no requests for supplementary information. I don’t know if including the date comparison table helped, but at least it didn’t leave any room for the officer to ask follow-up questions.

I completed the application for the support project immediately after receiving the certificate. It was four days before the deadline. About two months later, I passed the document evaluation and presentation evaluation and received a notification of selection. The subsidy was a portion of the equipment cost, and the company covered the rest. The inspected equipment arrived at the beginning of winter, and the new supply contract with the food company was also concluded around that time.

In the final consultation, the representative asked one question. “Do I have to do this again next year?”

Yes. The Small Business Confirmation Certificate is based on the previous business year’s final settlement data, so it is usually valid until the end of March of the following year. You need to renew it every year after the final settlement is completed. And I told them to create a new register and attach the date of creation to the file name each time the shares move.

It was an increase in capital to escape the shadow of my father’s company, but in the documents, it still appeared as a subsidiary of my father’s company. It was a difference of one folder.

8. Administrative Agent (Administrative Scrivener) Office Work and Checklist

Small and medium-sized enterprise confirmation certificates appear to have a simple procedure, so company representatives often apply directly. Most are issued without issue. Problems arise with companies that have other corporations listed as shareholders, companies that have recently undergone capital increases or stock transfers, and companies whose shareholder registers and financial statements do not match. It is safer to check these companies before applying.

If you are in one of these situations, please check.

Does another corporation hold shares in our company? First, check whether that corporation is subject to external audits and its shareholding percentage and whether it is the largest shareholder.
Was the date of the capital increase or stock transfer before or after the end of the previous business year? The determination depends on the reference date.
Do the shareholder register, corporate registry, and financial statements match? If any of these three are different, it will be the cause of a request for supplementation or rejection.
Have you confirmed the confirmation certificate’s reference date in the support project announcement? Most require a valid confirmation certificate as of the application deadline, and simply being in the process of applying is often not recognized.
Have you written the confirmation certificate’s validity period on your calendar? It needs to be reissued after the financial statements are finalized, so it is easy to have a gap around the end of March.

Hwang Yunsang Administrative Agent Office checks the shareholder composition and relevance of related companies in writing before applying for a small and medium-sized enterprise confirmation certificate, reviews rejection and determination reasons to organize reapplication documents, and acts as an agent for the preparation and submission of support project application forms and attachments. We also handle corporate certification documents linked to support project bonus points, such as venture company certification and corporate-established research institute recognition. Requirements and criteria vary depending on the case, so individual verification is necessary.

This is a story created to aid understanding.

This administrative agent office is located in Songdo, Incheon (Posco Tower Songdo). We handle administrative appeals, licenses/permits/notifications, foreign entry and immigration (visas and residence), and regular administrative management. We also prepare corporate certification documents, such as small and medium-sized enterprise confirmation certificates, which are linked to support project deadlines, counting backward from the date. Feel free to leave an inquiry if you are curious about similar situations.

Address: 165, Consia-daero, Yeonsu-gu, Incheon, Posco Tower Songdo 2697
Phone: 010-3374-2687
Website: www.hwangadmin.com