Startup Success Key: Checklist for Investment Agreements and Issuance of New Shares

Startup operations have moments of excitement, and one of them is securing investment.

Gaining investor trust and securing funding is an important turning point that announces the company's growth and leap. However, there are also many things to prepare for.

Especially, in the investment acquisition process, the essential new share issuance procedure, if not properly prepared beyond simply issuing new shares, there is a possibility of legal disputes due to investment acquisition process mistakes or inadequate contract writing.

Let’s take some time to learn about the key points of new share issuance and startup investment contracts with Law firm Veat’s investment attorneys.

Q1. What processes should be prepared when acquiring investment?

Acquiring investment is a very important step for company growth and business expansion, and there are two essential things to prepare in this process.

First, is the contract conclusion and implementation preparation with the investor. The investment contract should clearly state the investment amount deposit conditions, new share issuance conditions, and investor's rights. Second, is the new share issuance (rights offering) procedure. After the investor’s funds are deposited into the company, new shares must be issued based on this, and this process should be carried out by understanding and complying with the provisions of the Articles of Incorporation and the Commercial Code.

Q2. Who can decide on new share issuance?

A: The authority to decide on new share issuance belongs to the board of directors or the shareholders’ meeting. In principle, according to the Commercial Code, new share issuance can be decided by the board of directors. However, if the Articles of Incorporation explicitly stipulate that new share issuance should be decided by the shareholders’ meeting, the resolution of the shareholders’ meeting must be followed.

Q3. What restrictions should be considered when the board of directors decides on new share issuance?

A: The number of shares that the board of directors can issue is limited to the total number of authorized shares (number of authorized shares) specified in the Articles of Incorporation. If you want to issue more than the authorized shares, you must obtain a special resolution from the shareholders' meeting to change the total number of authorized shares and register the change.

Q4. How should new shares be issued to a third party who is not an existing shareholder?

A: In order to allocate new shares to a third party, there must be a provision in the Articles of Incorporation supporting this. If there is no such provision in the Articles of Incorporation, a special resolution from the shareholders' meeting must be obtained to amend the Articles of Incorporation before third-party allocation is possible.

Q5. What are the requirements for a special resolution of the shareholders’ meeting for third-party allocation?

A: A special resolution of the shareholders' meeting requires more than one-third of the shareholders to attend and more than two-thirds of the attending shareholders to vote in favor.

Q6. How are shareholders’ preemptive rights for new shares treated?

A: When issuing new shares, shareholders have the right to preferentially subscribe to new shares in proportion to their holdings (preemptive right). Whether this right can be transferred is stipulated in the Articles of Incorporation, and the Articles of Incorporation should also include provisions regarding the issuance of subscription certificates and the claim period.

Q7. What procedures are required to restrict or exclude preemptive rights?

A: In order to restrict or exclude shareholders’ preemptive rights, there must be a supporting provision in the Articles of Incorporation, and a special resolution from the shareholders' meeting is required for this. In addition, to protect the interests of existing shareholders, sufficient consideration must be given to the purpose of the share issuance and the appropriateness of the issuance price.

Q8. How can you check the types of shares that can be issued?

A: The types of shares that the company can issue should be specified in the Articles of Incorporation. When acquiring investment, if you want to issue various preferred shares (priority dividend shares, redeemable preferred shares, etc.), the Articles of Incorporation must clearly include the relevant basis and regulations.

Q9. What are the points to be aware of during the new share issuance process?

A: The most important thing to be aware of during the new share issuance process is compliance with the Articles of Incorporation and the Commercial Code. Non-compliant or off-regulation share issuance can lead to disputes with investors or legal issues.

Also, it is important to align the interests of existing shareholders before issuing shares to investors. For example, the cooperation of shareholders may be required for third-party allocation, so it is necessary to plan carefully in this process.

Q10. Why is the help of a legal expert needed?

A: For startups and venture companies, securing investment is not just about securing funds, but also about increasing the value of the company and laying the foundation for growth. However, in order to prevent legal issues that may arise in the process of new share issuance and investment contract conclusion, advice from a legal expert is necessary.

In particular, it is recommended to seek expert assistance in each stage, such as drafting investment contracts, amending the Articles of Incorporation, obtaining special resolutions from the shareholders' meeting, and increasing the total number of issued shares, to effectively resolve issues that may arise.

From investment contract conclusion to new share issuance,

Are you feeling overwhelmed about where to start and how to prepare?

Please contact Law firm Veat.

Law firm Veat ranked high in the Bloomberg 2023 Asia-Pacific Stars, specializing in supporting startups. In 2023, Law firm Veat achieved remarkable success, ranking among the top law firms in Asia-Pacific in terms of M&A advisory volume. In the Bloomberg 2023 Asia-Pacific Stars evaluation, Law firm Veat was recognized as a leading firm in the region, showcasing its expertise and impact on the startup ecosystem. The firm's consistent recognition underscores its commitment to providing exceptional legal services and contributing to the growth and success of startups.

In addition, Law firm Veat collaborates with Next Challenge and Kim Gisalab, global accelerators, to provide comprehensive support to early-stage startups to growing companies. This collaborative approach, combined with a wealth of legal advisory experience focused on startups, technology convergence capabilities, and a domestic and international investor network, allows Law firm Veat to provide exceptional legal services.

Law firm Veat professionally supports all processes of investment and new share issuance, and is a law firm highly trusted domestically and internationally in legal advisory services for startups and companies. This effort and achievement are also recognized by authoritative evaluation organizations, demonstrating the outstanding capabilities of Law firm Veat.

If you want to resolve legal issues that may arise in the investment acquisition and new share issuance process and maximize the potential for company growth, please contact Law firm Veat.

Thank you.
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