Case Studies
[202505] Monthly Veat May issue_ Court Perspectives on the “Obligation to Public Offering” Clause in Investment Contracts
An initial public offering (IPO) serves as a critical exit mechanism for investors in venture investments and is therefore a highly sensitive issue for both investors and companies. Accordingly, investment contracts in venture capital transactions commonly include provisions addressing IPO obligations, albeit with varying degrees of specificity. Recently, Korean courts have rendered notable decisions concerning these IPO-related clauses. This newsletter reviews the Seoul Central District Court decision (Case No. 2022Gahap536943), where the alleged breach of an IPO obligation under an investment agreement was at issue. 1. Background of the Case The plaintiff, an investment management company, entered into a common stock investment agreement with the defendant through a fund managed by the plaintiff. The key provisions of the agreement were as follows: Article 8 (Company’s Obligation to Public Offering) To facilitate the investor’s early exit, the company shall proceed with an IPO as follows: The company shall list its shares on the KONEX market by December 31, 2019, and subsequently list on KOSDAQ within two years after the KONEX listing. However, if the company proceeds directly to list on KOSDAQ, the obligation shall be deemed fulfilled. If an acquisition or merger proposal is made by another listed or unlisted company, the company shall consult with the investor and participate in good faith in such discussions. If the company is deemed to have reached maturity for IPO but delays it without valid reason, the investor may formally request the IPO in writing. The company shall then provide the investor with a written schedule and plan for the IPO. The company and its major shareholders understand that the investor may sell its shares if an IPO is not completed within two years and shall make their best efforts to fulfill the obligations herein. Article 15 (Liability of the Company and Major Shareholders) The investor may claim damages from the company and its major shareholders in the following cases: False representations or breach of obligations under this agreement that remain unremedied within 60 days of written notice; Insolvency events such as bankruptcy, composition, or suspension of bank transactions; Business suspension due to legal changes, judgments, or government orders. Furthermore, if the company or major shareholders violate Articles 6 through 8, they shall compensate the investor for the greater of: ① the investment amount, ② proceeds from the sale of shares in violation of Articles 6–7, or ③ the amount specified in Paragraph 3, as the minimum damages amount. After the investment was made, the plaintiff urged the defendant to fulfill its IPO obligation and to present a concrete plan. About eight months later, the plaintiff demanded the return of its investment on the ground of non-performance of the IPO obligation. When the defendant failed to comply, the plaintiff filed a lawsuit seeking repayment of the investment and accrued interest pursuant to Article 15(2). 2. Court’s Decision The court dismissed the plaintiff’s claim, holding that the company had not violated its IPO obligation for the following reasons: Article 8(1) used the expression “shall proceed to list (상장하도록 하여야 한다)” for KONEX listing but “shall list (상장하여야 한다)” for KOSDAQ listing. The former was interpreted as an obligation to endeavor to list, rather than a definitive obligation to achieve listing. Article 8(3) imposed a duty to propose an IPO schedule but did not set a fixed date. Article 8(4) required the company to “make its best efforts,” which indicates a duty of effort rather than a duty to achieve a result. Therefore, the defendant’s obligation was characterized as an obligation of means, not an obligation of result, and it could not be concluded that the company failed to perform its IPO obligation. Additionally, even if the company had breached its IPO obligation, the court held that Article 15(2)—which allowed the investor to claim damages for such breach—was void as contrary to the principle of shareholder equality, since it granted preferential rights or benefits to certain shareholders. 3. Commentary and Analysis While the court’s conclusion may be acceptable, the reasoning leaves room for discussion. Specifically, interpreting “shall proceed to list” merely as a best-effort clause seems debatable, since the expression “shall” inherently implies a binding obligation. Furthermore, in contrast to Article 8(2), which uses the phrase “shall act in good faith,” Article 8(1) could be understood as imposing a more definite obligation. Nevertheless, the court placed significant weight on the procedural safeguard under Article 8(3)—which requires a written IPO request and response—as well as the “best efforts” clause in Article 8(4), concluding that the mere failure to complete listing within the stated timeline did not constitute a breach of the IPO obligation. Similarly, in a more recent decision (Seoul Central District Court, Jan. 17, 2025, Case No. 2023Gahap95494), the court dismissed an investor’s claim for damages under a comparable IPO clause. It reasoned that the clause could not be interpreted as granting the investor an unconditional right to damages merely because the company failed to complete an IPO, but only where the company had willfully delayed or breached key contractual obligations that made listing otherwise feasible. 4. Practical Implications These decisions suggest that Korean courts tend to interpret IPO obligation clauses in investment agreements strictly and conservatively. However, they do not deny the validity of such clauses outright; rather, they assess their meaning on a case-by-case basis, in accordance with the general principles of contract interpretation established by the Supreme Court (Decision 2019Da226395, Mar. 31, 2022). Under these principles, when the literal meaning of a clause is ambiguous, courts must interpret it in light of its wording, the purpose and background of the agreement, the parties’ intent, and prevailing commercial practices, to reach a reasonable interpretation consistent with justice and fairness. Accordingly, both investors and investee companies should exercise great care when negotiating and drafting IPO-related provisions to ensure that the wording accurately reflects their intended level of obligation—whether it be a binding commitment or a best-effort undertaking. 5. VEAT Law Firm’s Insight Disputes like the present case underscore the importance of precise contract drafting. At VEAT Law Firm, we have extensive experience in investment contracts, mergers and acquisitions, and corporate finance matters. Our capabilities have been recognized globally—Bloomberg’s 2024 M&A League Table ranked VEAT 7th in Korea by number of transactions—demonstrating our trusted expertise in complex investment advisory work. For tailored legal advice regarding investment agreements, IPO obligations, or dispute prevention strategies, please feel free to contact VEAT Law Firm. Sincerely, VEAT Law Firm
Responding to regulatory violations due to failure to report overseas direct investment.
Law firm Veat received a request from a client with a subsidiary overseas and acted as an agent for the entire violation reporting regarding the overseas direct investment report that was omitted during the past paid-in capital increase process. The client belatedly realized that due to an employee's mistake, they had failed to fulfill the overseas direct investment pre-report for some of the multiple paid-in capital increases, and the situation was raising concerns about sanctions under the Foreign Exchange Transactions Act. According to the Foreign Exchange Transactions Act, when transferring funds to an overseas subsidiary in the form of a capital increase, a pre-report is, in principle, required, and failure to do so can result in fines, penalties, and even restrictions on foreign currency transfers or acquisition of overseas stocks. Accordingly, Law firm Veat meticulously sorted out the company’s past transaction history, analyzed the circumstances and legal nature of the previously unreported transactions, and submitted data that could substantiate the details, leading to a swift and efficient approval of the violation report. As a result, the client was able to resolve the unreported transactions and return to a state of being able to trade normally with the overseas subsidiary again. Law firm Veat supports one-stop services from reviewing the overview of complex foreign exchange transactions through the Overseas Investment Reporting Center to providing and submitting relevant data. Those who are interested in more details regarding this case study are welcome to refer to the official blog. ▶Go to Law firm Veat Overseas Investment Reporting Center (FX CENTER) Thank you.
‘Best if Used By’ Expiration Date Labeling Mandate Related Column
Law firm Veat’s Juhyeong Lee, Head of Food Regulatory Consulting Team, contributed a column to the Food & Beverage News on the topic of Practical Strategies to Respond to California’s New Date Labeling System. California is scheduled to mandate the use of only “Best if Used By” or “Use By” expressions on food packaging from 2026. Expressions widely used previously, such as “Best Before” or “Expiration Date,” will be prohibited, and violations may result in fines, prohibition of product sales, and other strong sanctions. When Korean food companies export products to the US market, they need to redesign the entire labeling system, not just make simple wording changes. Especially for kimchi, ramen, processed meats, and dairy products, quality and safety must be communicated in a way that consumers can easily understand, and a response that considers not only legal regulations but also consumer perceptions is necessary. This regulatory change can be both a new risk and an opportunity. It is a critical time for comprehensive responses, including setting expiration dates based on scientific evidence, adopting display methods suitable for online distribution channels, and considering additional regulations such as Proposition 65. Law firm Veat provides legal advice specializing in the domestic and international food industries and performs customized consulting to enable companies to proactively respond to changes in the global regulatory environment. California’s Mandate of ‘Best if Used By’: Compliance Strategies to Transcend Federal Recommendations - Juhyeong Lee’s Global Food Trends (5) - Food & Beverage News Thank you. Law firm Veat
Branch establishment registration procedure consultation and execution
Law firm Veat recently received a request from a software development startup (hereinafter referred to as “client”) to advise on commercial registration procedures related to branch installation and to perform related registration work. Since the client started operating independently at a location other than the headquarters, it was necessary to be regarded as a “branch” under the Commercial Code and to proceed with branch installation registration (Commercial Code Article 181). Law firm Veat informed the client that registration application was required within 2 weeks from the installation date and subsequently provided comprehensive support from securing decision-making documents to drafting and submitting registration documents, and also checked the practical requirements for completing registration within the deadline. Law firm Veat provides commercial registration services such as branch installation, company establishment, headquarters relocation, and paid-in capital increase, in addition to branch installation. For those who are interested in more detailed information regarding this case study, please check the following blog. - Requirements for Branch Installation Registration That Must Be Checked When Operating a Business Location Other Than the Headquarters Thank you. Law firm Veat
Legal review regarding the possibility of setting a lien on future receivables.
Law firm Veat recently received a request from a SaaS solutions company (hereinafter referred to as the “Client”) to review the possibility of setting a pledge on future receivables. The Civil Code does not have explicit legal provisions on this matter, but it specifies that unless otherwise provided by law, the setting of a pledge on a right shall be in accordance with the method for transferring that right (Civil Code Article 346), and the Supreme Court has ruled that in principle, future receivables can be transferred under certain conditions (see Supreme Court ruling of April 8, 2010, 2009da96069). Law firm Veat reviewed the Client’s possibility of setting a pledge on future receivables based on relevant regulations, the Supreme Court’s precedent, and similar cases. Law firm Veat provides optimized legal advice on legal issues arising in the Client’s business operations and aims to provide one-stop legal services to help the Client proactively identify and comprehensively respond to legal risks. Those who are interested in more detailed information related to this case study can check it on the blog below. - [Lien] Is it possible to set a pledge on future receivables? Thank you. Law firm Veat
Secondary Derivative Works Copyright Column Contribution
As the creation of new works based on originals becomes commonplace in the content industry, copyright issues related to ‘derivative works’ are receiving increasing attention. Law firm Veat TIP (Technology Intellectual Property) team has contributed a column on derivative work creation rights to the startup media platform Platum in line with this trend. This column details the legal requirements that must be met for actions to be recognized as creative acts rather than simple ‘imitation’, the criteria for distinguishing between reference and infringement when plagiarism allegations arise, and copyright protection strategies that should be considered in the actual creation process, all from a practical perspective. In particular, with the current proliferation of diverse forms of derivative creative activities, such as generative AI, remixes, parodies, and fan content, this column specifically explains when such content may be eligible for legal protection and under what circumstances it may be considered infringement. You can find more details at [this link]. The TIP team is led by attorney Oh Seung-jong (former Chairman of the Korean Copyright Committee), who has extensive experience in the copyright field, and provides support for various copyright practices surrounding content production and distribution. In particular, the team has provided numerous consultations on copyright contract structure design, infringement determination, and rights assignment review for companies such as game developers, education platforms, and content production companies. If you need assistance with legal interpretation related to derivative works, utilizing generative AI-based content, or legal issues in the process of creating parodies or fan content, please feel free to contact Law firm Veat TIP team. Thank you. Law firm Veat
Review of service contract for performing service for system development and construction.
Law firm Veat reviewed the service contract from the perspective of the client, who is the developer entrusted with the system development and construction service. As system development and construction projects become more active, the legal importance of the service contracts concluded by the developer is also increasing. However, some contracts are written from the client's perspective and may impose excessive obligations or restrictions on rights on the developer, so caution is needed. Law firm Veat in this case meticulously reviewed key clauses such as the scope of ownership of deliverables and intellectual property rights, delay penalties in the event of project schedule delays, timing and method of development payment, and liability for damages, identifying unfavorable terms for the client and providing detailed analysis of the legal risks and precautions for each item. Furthermore, we presented specific amendment proposals to improve the actual contractual conditions, supporting the client to perform system development and construction tasks under stable and fair conditions. Law firm Veat provides specialized legal advice on system development and construction contracts based on a high understanding of the IT and software industry as a whole. Based on practical experience accumulated in various technology-based projects, we are designing strategic contract structures to ensure that the developer's technological assets and business capabilities are fully protected in the contract. Those who are interested in more detailed information about this case study can check it on the blog below. What to Check from the Developer's Perspective for System Development and .. : Naver Blog Thank you. Law firm Veat
[IT Column] Copyright Risks of Generative AI Content and Corporate Response Strategies
Recently, generative artificial intelligence (Generative AI) technology has been rapidly spreading, and copyright issues related to content creation have become the center of new legal discussions. As AI now performs some of the creative activities that were previously performed only by humans, legal confusion regarding the definition of copyrighted works and ownership of rights is increasing. The current copyright law defines a "copyrighted work" as "an expression of human creativity," so content independently generated solely by AI is difficult to recognize as a copyrighted work legally. Therefore, for AI content to receive copyright protection, human creative input is essential. It’s not enough to simply instruct AI; creative composition, editing, and arrangement of the results, along with active and creative human intervention, are essential. Furthermore, the terms of service for generative AI platforms vary, and companies must be sure to check them. Some platforms assign a portion of the rights to the generated content to the platform itself, or place restrictions on commercial use, so caution is needed. Therefore, it is important for companies to carefully review AI platform terms of service and clearly reflect them in internal policies. The risk of copyright infringement related to AI training data cannot be overlooked either. When companies train AI themselves, it is safest to use only public data or data with clear copyright; the use of uncertain data may result in legal risks. To effectively utilize generative AI while minimizing legal risks, accurate understanding and response strategies for these copyright issues are essential.
PG Payment Service Terms of Use Integration and Prepaid Electronic Payment Method Legal Advisory Cases
Law firm Veat provided legal advice to a creator IT company regarding the process of reflecting and integrating payment services through a payment processing service (PG) into its platform's terms of service. This advice focused primarily on reflecting relevant legal requirements and essential consumer protection guidelines into the terms of service, based on whether the client's transaction structure could be considered a prepaid electronic payment method, and integrating terms of service for increasingly diverse payment services. Law firm Veat thoroughly reviewed whether the client's loyalty points system could be considered a prepaid electronic payment method. Additionally, it advised that telemarketers are obligated to inform consumers of the name, type, and content of goods, the method and timing of supply (Article 13(2) (2), (2)2, and (4) of the Act on Consumer Protection in Electronic Commerce), and that when operating loyalty points (points, mileage, etc., regardless of the term) in cyber malls, conditions of use, period of use, expiration conditions, and compensation standards in case of failure to use due to the business operator’s fault must be posted in an easy-to-understand manner for consumers, and also provided clear and specific guidance methods consistent with relevant regulations for the validity period and usage period of such loyalty points, to support preventing consumer confusion and subsequent legal disputes. If terms are managed individually, there is a possibility of conflicts or inconsistencies. To minimize such problems, we recommend integrating the terms of service. Law firm Veat analyzes the client’s business structure and service content in detail to provide integrated terms of service that prevent legal risks and increase clarity. To this end, Law firm Veat operates a systematic Legal Tune service, from business model analysis to customized form creation. If you need assistance with drafting terms of service or legal advice, please feel free to contact Law firm Veat. Those interested in more details about this case can refer to Law firm Veat’s official blog. Thank you. From Law firm Veat
Healthcare medical device product related goods sales contract drafting consultation
Law firm Veat received a request from Company A (hereinafter referred to as the "client"), a company developing and distributing products in the healthcare sector, and drafted a product sales contract for distribution with other companies. In this advisory service, we comprehensively reviewed matters such as intellectual property rights ownership and scope of use, response method in case of product defects, contract termination and damages conditions, in accordance with the characteristics of healthcare products combined with advanced technology. In particular, we established specific criteria to enable proactive responses regarding inspection and delivery conditions, payment methods, etc., which are likely to cause practical disputes during contract performance. Also, we included a non-disclosure agreement (NDA) clause to prevent the client's technology information and transaction conditions from being leaked externally and established legal safeguards to maintain information protection even after contract termination. Law firm Veat provides practical contract documents tailored to the characteristics of the bio and healthcare industries, supporting technology-based companies to effectively control legal risks. Those who are interested in more details about this case study can check it on the following blog. - 6 Risk Prevention Clauses to Check Before Concluding a Product Sales Contract Thank you. Veat Law Firm