Step-by-step review for virtual asset business models and business structure changes.

Law firm Veat received a request from digital virtual asset platform A (hereinafter referred to as "the client") to review risks related to the transition of its asset business model and changes to its business structure.

The client had previously outsourced operations to B Corporation, but planned to establish C Corporation and conduct existing and new businesses through C Corporation. The client requested a review of potential legal risks involved in the process of changing the business structure, given that the representatives of the client, B Corporation, and C Corporation were the same.

Law firm Veat provided legal advice to review the legal risks of the newly promoted virtual asset-based business model and prevent conflicts between regulations and corporate activities regarding changes to the business structure.

Law firm Veat’s Step-by-Step Review

STEP 1. Risk Review for Changes in Business Operating Entity
When transitioning operations from B Corporation to newly established C Corporation, we reviewed potential legal disputes between various stakeholders in the process of terminating existing contracts and entering into new contracts, as well as the legality and efficiency of whether liabilities and obligations would be transferred to the new corporation.

STEP 2. Asset Transfer through Asset Acquisition
We reviewed potential legal risks that could arise in the process of transferring equity and related assets, depending on the method of changing the business operating entity through contracts among the client, B Corporation, and C Corporation, such as asset acquisition. Note that in some cases, transfer or assignment of contracts cannot be done without the consent of the existing contract parties.

STEP 3. Adjusting Interests of Other Shareholders
Since B Corporation was not a one-person company, we advised that collaboration and decision-making should precede any changes in the business operating entity to consider the possibility of existing shareholders claiming disadvantage, and reviewed potential risks in this process.

STEP 4. Review of Legal Risks Related to Virtual Asset Business
In the case of a virtual asset business, compliance with reporting obligations stipulated in laws and regulations such as the Act on Reporting and Use of Specific Financial Transaction Information (hereinafter referred to as "Specific Financial Transaction Act") is required. Virtual asset businesses must register with the Financial Intelligence Unit, and if a virtual asset transaction is operated as a business without registration, one may be sentenced to imprisonment for up to five years or fined up to 50 million won (Specific Financial Transaction Act Article 37 (1) and Article 57 (1)), and the regulations in the Specific Financial Transaction Act and the Virtual Asset User Protection Act also apply in the same way even if the acts are carried out overseas and their effects are felt in Korea.
 

Virtual Asset User Protection Act

Meanwhile, the Virtual Asset User Protection Act, newly enacted and put into effect in July, stipulates that virtual asset businesses shall not trade or engage in other transactions involving virtual assets issued by them (Virtual Asset User Protection Act Article 10 (5)), which effectively prohibits the issuing entity and its related parties from engaging in any transactions related to those virtual assets.

- Definition and Scope of Virtual Assets It defines virtual assets as electronic evidence of economic value that can be traded or transferred electronically. However, it excludes electronic evidence that cannot be exchanged for money, goods, or services, or when the issuer limits its use and purpose. - User Asset Protection Virtual asset businesses must store user deposits in public institutions such as banks, and are obligated to store at least 80% of virtual assets in cold wallets. - Regulation of Unfair Trading Practices It prohibits unfair trading practices such as market manipulation, use of non-public important information, and fraudulent transactions, and may impose administrative penalties equal to twice the amount of illegal profits in violation. - Strengthening of Financial Supervisory Authority’s Supervisory and Investigatory Powers The Financial Supervisory Commission and the Financial Supervisory Service can inspect the business and financial status of virtual asset businesses and investigate unfair trading practices, and may take measures such as suspension of business, order to rectify, and referral for indictment, if necessary.

Law firm Veat provided legal advice focusing on the Specific Financial Transaction Act and the Virtual Asset User Protection Act to ensure the client's new business can operate stably within the legal environment and to prevent conflicts with relevant regulations by restructuring the operating structure of the existing business.

Law firm Veat provides tailored solutions to clients, based on the accumulated experience and expertise gained by providing legal advice to numerous domestic and foreign companies in the business model review and virtual asset and blockchain legal fields, going beyond simply resolving legal issues and managing legal risks in advance in the changing digital economy environment, so that clients' businesses can grow sustainably and stably.

We recommend that companies requiring virtual asset and business model consulting secure legal stability through Law firm Veat.

Thank you.
Law firm Veat