Case Studies
[Consultation] Necessity of Securities Acquisition Report when Foreign Executive Stock Options are Exercised
Law firm Veat conducted legal review regarding the necessity of securities notification when foreign employees exercised stock options. AI technology-based company A requested legal advice regarding whether it needed to conduct a foreign securities notification due to foreign employees exercising stock options (stock purchase options) and acquiring shares of A. Law firm Veat conducted legal review regarding whether foreign employees who acquired shares through the exercise of stock options (stock purchase options) were subject to reporting requirements under the Foreign Exchange Transactions Act, and then provided guidance on the related procedures and required documents. Law firm Veat has provided legal advice on various stock option (stock purchase option) exercise cases, and has also handled a large number of foreign securities notification related matters, which allowed us to efficiently provide legal advice in this case where legal advice on stock options and securities notification was needed. If you need legal advice regarding the exercise of stock options (stock purchase options) by foreign employees, or other related matters such as the exercise of stock options (stock purchase options) and securities notification, please feel free to contact Law firm Veat. Thank you. Law firm Veat
[Consulting] Performing Foreign Exchange Transaction Reporting in Connection with Overseas Corporate Investment
Law firm Veat performs foreign exchange transaction reporting necessary in the process where domestic venture capital firms invest in overseas startups. Domestic venture capital (VC) A Corp. requested Law firm Veat to handle foreign exchange transaction reporting business in the process of subscribing to new shares and converting existing SAFE investments in overseas startups. Law firm Veat utilized its diverse experience in foreign exchange transaction reporting to quickly perform foreign exchange transaction reporting to the Bank of Korea for VC A Corp. in the process of subscribing to new shares and converting existing SAFE investments in overseas startups, resulting in satisfactory feedback from the client. Simple Agreement for Future Equity (SAFE) investment agreements, which refers to the acquisition of conditional equity, were introduced in August 2020 under the “Special Act on Promotion of Venture Companies” (Venture Companies Act). Due to the fact that the valuation stage of investment contracts takes a lot of time because the business models of early-stage companies have not been verified, many VCs and companies are utilizing SAFE investment agreements that allow them to skip the valuation stage. However, when conducting investment agreements, such as SAFE investments, for overseas startups and companies, it is necessary to check whether they are subject to the “Foreign Exchange Transactions Act” and whether there is a reporting obligation under the “Foreign Exchange Transactions Act” before transferring investment funds overseas. Law firm Veat provides assistance with not only advice on investment itself but also with all-around work, including reporting procedures necessary in the investment process, based on its diverse experience in investment legal advisory. If you need legal advisory related to the Foreign Exchange Transactions Act, such as overseas investment reporting and securities acquisition reporting, or foreign exchange transaction reporting, please feel free to contact Law firm Veat at any time. Thank you. Law firm Veat.
[Consultation] Compliance Matters for Personal Information Storage in Domestic and Foreign Clouds
Law firm Veat received a referral from A, a company providing medical services, to conduct a legal review regarding compliance requirements when storing personal information in domestic and foreign cloud environments. A requested a review regarding compliance requirements when storing personal information in domestic and foreign cloud environments. Accordingly, Law firm Veat conducted a legal review under the “Personal Information Protection Act” and the “Act on Promotion of Information and Communications Network Utilization and Protection of Information” (Information Network Act) regarding whether A can store personal information in domestic and foreign cloud environments, and if so, the procedures A must undertake to store personal information in foreign cloud environments. Cloud services allow you to store and process vast amounts of data simply by having an internet connection, making it one of the services widely used by many companies. However, to move personal information from domestic cloud environments to foreign cloud environments, you must confirm the contents stipulated in the Personal Information Protection Act and the Information Network Act, such as customer consent related to personal information overseas transfer and relevant procedures. Law firm Veat provides corporate-usable personal information guidelines related to personal information storage and overseas transfer of personal information. If you need advice on legal issues related to personal information, including compliance requirements when storing personal information in domestic and foreign cloud environments, please feel free to contact Law firm Veat at any time. Thank you. Law firm Veat
[Consultation] Review of the securities nature of platform coins (virtual currency) and NFTs of metaverse services.
Law firm Veat conducted due diligence on coins (virtual currencies) and NFTs used within the platform of metaverse services, and the securities examination thereof. A startup-focused investment corporation A Co. requested a legal review regarding business models that involve creating real estate as NFTs within the platform of metaverse services and issuing associated virtual currencies. In response, Law firm Veat analyzed the coins (virtual currencies) and NFTs, as well as business models within the metaverse service platform requested by A Co., and conducted a deep review regarding securities compliance in accordance with the “Act on Reporting and Use of Financial Information” (hereinafter referred to as the “Financial Information Act”) and the “Act on Capital Markets and Financial Investment” (hereinafter referred to as the “Capital Markets Act”). NFTs differ from existing virtual assets in that they represent ownership of physical assets, which raises the possibility of being interpreted as securities. The Financial Services Commission has been operating a Securities Review Committee since February 2022 to determine the investment nature and whether they are securities of virtual assets, including NFTs. If the business model and virtual assets linked to NFTs are judged as securities according to the Capital Markets Act, they will be incorporated into the supervision target of the Financial Supervisory Service and risk being subject to penalties under the Capital Markets Act. Therefore, NFT issuers, platform operators, and NFT exchanges should proactively examine the possibility that the NFT linked to a specific business model could be interpreted as an investment contract or other types of securities in the business planning stage and carefully formulate business plans. Startups launching NFT businesses, along with other coin and token businesses, also need to carefully review legal risks. Law firm Veat provides in-depth legal advice, including securities examination and legal compliance of issuing and distributing coins (virtual currencies) and NFTs based on a broad understanding of the blockchain, NFT, and metaverse industries. Specifically, the firm’s representatives, Partner Lawyers Seongho Choi, Dongyoung Song, and Ilwon Ahn, have been appointed as members of the IT Blockchain Committee of the Korean Bar Association, further enhancing their expertise. Thank you. Law firm Veat Dream
[Consultation] Shareholder meeting, articles of incorporation etc. – check items before stock option grant.
Law firm Veat conducted a comprehensive legal review to ensure that stock options are properly granted, including shareholder meetings, articles of association, and certificate of all registered items. A Co., which manufactures and sells pet-related devices, requested a legal review to determine whether stock options (stock purchase rights) were properly granted. Law firm Veat reviewed A Co.’s stock option granting status and provided guidance on the necessary requirements under the “Companies Act” and the “Special Act for the Promotion of Venture Companies” (Venture Companies Act), including the preparation of a shareholder meeting resolution, and the necessity of aligning the total number of shares to be issued with the articles of association and certificate of all registered items. Stock options are strictly regulated under the Companies Act and the Venture Companies Act, and if not granted properly, the stock option granting itself may become ineffective. Given the 2022 February amendment to the Venture Companies Act, which has diversified the methods for determining stock option exercise prices, we recommend that companies adopting the stock option system seek professional assistance to operate an effective and efficient stock option granting system. Law firm Veat provides comprehensive legal counsel on all aspects of stock option granting, from reviewing shareholder meetings and articles of association to drafting stock option agreements. If you need legal advice regarding stock options, please feel free to contact Law firm Veat at any time. Thank you. Law firm Veat
[Consulting] Review of publishing agreement related to IP intellectual property rights, trademark rights.
Law firm Veat conducted a legal review of the publishing agreement for A, an online game development company, upon receiving a commission. A requested a legal review of the publishing agreement as it was in the process of preparing a joint business for online and mobile games. Law firm Veat reviewed the publishing agreement from A’s perspective, considering the situation where A was utilizing the publisher’s IP to develop online and mobile games. It examined the agreement, generally limiting the rights granted to the publisher and securing equal rights for the developer, and added a clause allowing the developer to have the right to use databases such as game user data and in-game user data that arise during the service process. Notably, this case was an important matter because if A had proceeded with the contract according to the initial draft of this publishing agreement, the developer would have lost all trademark rights related to the ownership and sale, business, and service of the database of the developed game, and could have faced significant restrictions in servicing the game after the termination of this publishing agreement. Law firm Veat provides legal advice by understanding the positions of both the publisher and the developer, based on its experience reviewing publishing agreements for numerous game companies. If you need legal advice regarding publishing agreements, please contact Law firm Veat. Thank you. Law firm Veat
[Consultation] Granting Stock Options to Incoming Employees
Law firm Veat was commissioned by A, a global artificial intelligence startup, to conduct a legal review of the possibility of granting stock options to prospective employees. A, a global artificial intelligence startup, requested that Law firm Veat review whether it could provide stock options (employee stock purchase options) to prospective employees before hiring key personnel. Accordingly, Law firm Veat conducted a comprehensive review of relevant laws such as the “Companies Act” and the “Special Act on Promotion of Venture Companies” (hereinafter referred to as the Venture Companies Act), as well as A’s articles of incorporation and internal regulations, and provided legal advice regarding the feasibility of granting stock options (employee stock purchase options) to prospective employees on their date of employment, and a legal opinion on whether it was possible to grant stock options (employee stock purchase options) to prospective employees in advance. If the employee stock purchase option system is utilized, from the startup’s perspective, it may be difficult to guarantee high salaries during hiring, but it is possible to secure excellent talent, and naturally, it can encourage the loyalty of personnel towards the growth of the startup. From the personnel’s perspective, because they can utilize their abilities to contribute to the growth of the startup and obtain significant profits through stock options (employee stock purchase options), the employee stock purchase option system is a win-win situation for both the startup and the personnel. However, when a startup grants employee stock options (employee stock purchase options) to its personnel, there are many diverse decision-making factors regarding the timing of the grant, the number of shares granted, and the exercise period (vesting schedule). Among these, the stock option (employee stock purchase options) exercise price, which is the most frequently considered by the company and the founder, has been amended by the amendment of the Venture Companies Act in February 2022, and the employee stock purchase option system is a win-win situation for both the startup and the personnel. Therefore, any company wishing to utilize the employee stock purchase option system should review the amended Venture Companies Act. Law firm Veat is providing consulting services regarding the employee stock purchase option system in accordance with the Venture Companies Act amended in February 2022. If you need consulting services for granting stock options, including amending the articles of incorporation, reviewing the timing, number, and exercise period of stock options, and drafting stock option agreements, please contact Law firm Veat at any time. Thank you. Law firm Veat
[Column] Venture Company Stock Options, Can't Give Them Away Cheaply Now?
Startups are always eager for talent. They offer creative environments, new challenges, and passionate colleagues to attract talented people. However, in many situations, the biggest incentive is giving them the opportunity to “ride shotgun” – meaning to gain stock options. A stock option is a right granted to an employee to buy the company’s shares at a relatively low price over a long period. For smaller, early-stage startups, the value can increase dramatically depending on the skills of a few key employees, and granting stock options can accelerate the company's growth. Stock options can make employees feel like they are part-owners of the company and share in the company’s growth. When a startup offers stock options to its employees, it considers various factors, including the timing of the offering, the number of shares, and the vesting schedule. The most crucial decision is the strike price – the price at which the employee can buy the shares after a certain period. From an employee’s perspective, the lower the strike price, the better. Even if the company’s stock price drops, they can still profit. From the company’s perspective, a higher strike price allows it to recognize more stock appreciation, and it can also serve as a stronger incentive for employees to focus on the company’s work. Employees who receive stock options are motivated to act like owners and maximize their potential value. In principle, the strike price for venture company stock options, until February 2, 2022, was calculated using the official method, as stipulated in Article 16(3) of the Venture Company Act and its implementing regulation Article 11(3) (2) – a weighted average of the book value and net asset value on the issuance date. (1) The remaining factors were determined through negotiations between the company and the employee. However, for private companies, it is difficult to accurately determine the market price of the shares. Until February 2, 2022, the Venture Company Act stipulated that the valuation method for private venture company shares was based on the official method as stipulated in Article 16(3) of the Venture Company Act and its implementing regulation Article 11(3) (2) – a weighted average of the book value and net asset value on the issuance date. (2) This formula meant that many startups and venture companies with low book values and net asset values could have their stock prices calculated as close to zero, allowing them to freely determine their stock option strike prices. However, on February 22, 2022, the Venture Company Act was amended, resulting in a change to the valuation formula. The new regulation allows the valuation of private venture company shares using (i) trading price if there is a trading record (average over 6 months prior to and after the issue date), (ii) appraised value by a valuation firm, (iii) auction price, (iv) other valuation criteria determined by the Tax Office Appraisal Committee. (3) When stock prices are calculated this way, the company’s actual valuation (valuation) can become the lower limit for the stock option strike price. It also becomes less likely that a startup will be highly valued in the market but have low operating profits or asset values, leading to a lower stock option strike price. Consequently, startups seeking investment or selling shares to investors may find it harder to use a low-priced stock option to incentivize employees. Stock options are undoubtedly a useful weapon in the battle for talent. However, the legal regulations surrounding startup stock options are complex, and they can change quickly, especially before they are widely publicized. When designing stock option plans, it is essential to consider various legal constraints and business conditions. (1) Venture Company Act, Article 16(3) (10), Implementing Regulation Article 11(3) (2) (2) Amended Venture Company Act Implementing Regulation Article 11(3) (2) (3) Amended Venture Company Act Implementing Regulation Article 11(3) (2) (1) (a), Inheritance and Gift Tax Act Article 60, Inheritance and Gift Tax Act Implementing Regulation Article 49, [Korea Policy Briefing, “Venture Company Stock Options, Valuation Methods for Private Shares Diversify,” February 15, 2022”]
[Consultation] Drafting Terms of Use for Cryptocurrency Exchange Utilization
Law firm Veat assisted A, a company operating a virtual currency exchange, in drafting the terms of service. A, which utilizes the company's virtual currency exchange IT system, requested Law firm Veat to draft its terms of service. Law firm Veat advised A to clearly define the distribution of authority and responsibility for customers using the virtual currency exchange, and provided assistance in drafting the terms of service, including obligations under the “Act on Consumer Protection in Electronic Transactions and Business,” specifically the “Obligations of Service Providers and Service Sellers.” The terms of service are structured to ensure that when a business enters into a contract with a customer, the customer is clearly informed of the contents of the terms of service using “generally expected methods” and explained “important content stipulated in the terms of service” in a way that the customer can understand (Article 3(2) and (3) of the Act on Consumer Protection in Electronic Transactions and Business). As interest in virtual currencies, such as Bitcoin, has increased, and the number of users of domestic virtual currency exchanges is also rising, companies operating related businesses such as virtual currency and Bitcoin should proactively prevent potential disputes and issues by drafting terms of service that clearly define the rights and responsibilities of customers. If you need legal assistance with the drafting of terms of service and operation of a virtual currency exchange, please feel free to contact Law firm Veat at any time. Thank you. Law firm Veat.
[Consultation] Shareholder Relationship Settlement Agreement Drafting Between Company and Representative Director
Law firm Veat prepared a general power of attorney agreement related to the resolution of the equity relationship of the representative director and the agreement between the company and the representative director. A, a blockchain development company, requested that Law firm Veat review an agreement that recorded key matters agreed upon verbally, including the representative director’s term of office, compensation, and equity resolution, in the situation where the representative director announced his resignation. Accordingly, Law firm Veat prepared an agreement based on relevant laws such as the “Companies Act” and the “Workers’ Compensation Insurance Act (Workers’ Insurance Act”), regarding key matters agreed upon verbally between the representative director and the company, including the representative director’s term of office, compensation, and equity return. Specifically, it clarified the procedure for the company’s right of first refusal, added provisions to allow the director to be recognized as an employee, and provided guidance on restrictions on the director’s self-dealing transactions and the company’s acquisition of its own stock. In relation to Article 398 of the Companies Act (Transactions between Directors and Companies), the court has ruled that this article is intended to protect the interests of the individual or the company by preventing transactions involving a director or representative acting as an agent, who sacrifices their own interests or the interests of the company to pursue the interests of themselves or a third party (Seoul Central District Court, Case No. 90gahp7297). Therefore, transactions between the representative director and the company must be conducted in accordance with predetermined requirements and procedures, and if this is violated, the contract may be deemed void regardless of the parties’ intentions. Furthermore, the acquisition of the company’s own stock directly by the company is limited to very specific reasons under Article 341 and 341.2 of the Companies Act. You should note that the company’s direct acquisition of its own stock is restricted unless there is a specific reason specified in the law. Law firm Veat provides regular legal advisory services and offers timely and efficient legal counsel on issues that inevitably arise in the course of company operations, just like an in-house lawyer for the company. If you need regular legal counsel on transactions between the company and the representative director (director), the company’s acquisition of its own stock, or the preparation of agreements, please contact Law firm Veat. Thank you. Law firm Veat