Because unlisted Korean companies rarely trade shares in an active market, Korean unlisted stock valuation cannot rely on observable market price. Instead, Article 63(1) of Korea's Inheritance and Gift Tax Act mandates a "supplementary valuation method" that combines a company's net-asset value and net-profit value to approximate fair value.
For a general company, the two values are weighted 3:2 — 60% net-profit value, 40% net-asset value — calculated as: (per-share profit value × 3 + per-share net-asset value × 2) ÷ 5. If this weighted average falls below 80% of per-share net-asset value, the law applies a floor of 80% of net-asset value instead.
Net-profit value assumes the business will continue and that past earning power will persist. It's calculated by dividing the three-year weighted-average net profit by 10%, where the three-year average itself weights the most recent year 3x, the year before 2x, and the earliest year 1x, divided by 6 — giving more weight to recent performance.
Net-asset value represents what shareholders would receive if the company were liquidated on the valuation date: net assets (asset value minus liabilities) divided by shares outstanding. If the tax-assessed value is lower than book value, book value applies; if net assets are negative, the value is treated as zero; and business goodwill is added to the total.
Certain companies skip net-profit value entirely and use net-asset value alone: companies in liquidation or unable to continue operating, companies less than three years old or in suspension/closure, companies where real estate or securities exceed 80% of assets, and companies with a lifespan of three years or less. Real-estate-heavy companies (50%+ of assets in real estate) flip the weighting to 40% net-profit / 60% net-asset value. A 20% premium applies to shares held by the largest shareholder, though SMEs, mid-sized companies, and consistently loss-making companies are exempt from this premium.
If Company A's three-year weighted-average net profit is 10 million KRW, its per-share profit value is 100 million KRW (10 million ÷ 10%). If its net-asset value is 8 billion KRW across 1,000 shares, per-share net-asset value is 8 million KRW. The final valuation: (100M × 3 + 8M × 2) ÷ 5 = 92 million KRW. Under the same numbers but as a real-estate-heavy company, the reversed weighting gives (100M × 2 + 8M × 3) ÷ 5 = 88 million KRW.
This is a tax topic on its surface, but it directly shapes startup capital strategy and equity communication — stock option strike prices, founder-to-employee share transfers, and pre-fundraising valuation consistency all hinge on this supplementary method as a real reference value. Because real estate concentration, company age, and largest-shareholder premiums can swing the valuation significantly, any equity decision that becomes part of PR or investor messaging needs a parallel tax review.
For founders emphasizing brand and growth narrative, it's also worth understanding the gap between the "company value" told externally and the legally assessed value — managing that communication risk proactively, and tracking thresholds like the three-year mark or the 80% asset-composition rule when timing equity events.
For guidance connecting your equity strategy with investor communications, get in touch with Best Partner.
Because unlisted companies rarely have an observable market price, Article 63(1) of Korea's Inheritance and Gift Tax Act requires combining net-profit value and net-asset value in a weighted average to approximate fair value.
General companies weight net-profit value 60% and net-asset value 40% — (profit value × 3 + net-asset value × 2) ÷ 5 — with an 80%-of-net-asset-value floor if the weighted result falls below that threshold.
Companies in liquidation, unable to continue operations, less than three years old, in suspension or closure, with real estate or securities exceeding 80% of assets, or with a lifespan under three years use net-asset value alone.
The supplementary valuation directly affects stock option pricing, founder-to-employee share transfers, and fundraising valuation consistency, making it essential context for any startup handling equity events or investor communications.
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