Startup’s Must-Know Core of RCPS Contract Review
Article posted in 2024-12-17 17:26:25 | VEAT
Law firm Veat received a request from a semiconductor company (hereinafter "client") to review RCPS (Redeemable Convertible Preferred Shares, 전환상환우선주) investment contracts, and provided professional legal advice to ensure the company receiving investment could grow in a legally stable environment.
Law firm Veat's investment lawyers meticulously reviewed the RCPS contract proposed by the client. This ensured the protection of the receiving company's interests and confirmed that the investor's consent and consultation rights were not excessive.
First, the representation and warranty provisions were modified to prevent the client from being placed in an unfavorable position. For example, the phrase “the investee warrants that all statements are true” in the contract was changed to “materially true” to prevent the client from bearing more responsibility than necessary.
Also, the scope of consent and consultation rights were reasonably adjusted, and recommendations were made to delete or modify ambiguous or client-unfavorable clauses.
Finally, clauses that could restrict the company's management activities in the long term were carefully reviewed to provide advice focused on protecting the client's management rights.
What is RCPS (Redeemable Convertible Preferred Shares)?
Raising investment is essential for startups to grow and secure competitiveness in the market. In particular, complex investment instruments such as Redeemable Convertible Preferred Shares (RCPS) can be stably achieved through trust building and clear contracts between investors and investees.
RCPS is a widely used method in startup investment, offering flexibility in capital raising for startups and stability for investors, possessing advantages for both investors and companies.
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- Conversion Right: Investors can convert preferred shares into common shares under certain conditions, allowing them to benefit from the stock value appreciation of the company. |
RCPS contracts may contain complex clauses, therefore, it is recommended to receive advice from investment legal experts before entering into investment contracts to ensure the company’s long-term growth and stable management.
Law firm Veat, the leader in Startup Investment and M&A Legal Advice
There are cases where the proceedings continue without knowing whether the consent and consultation rights in the investment contract are within an acceptable range. If an investor’s authority is set excessively, it can significantly restrict the company’s independent decision-making and management activities. Therefore, it is essential to thoroughly review clauses in investment contracts such as consent and consultation rights and examine them in advance to ensure they are acceptable from the startup’s perspective. Especially startups in the growth stage need to be flexible in responding to rapidly changing business environments, so setting appropriate scopes for consent and consultation rights is beneficial.
Law firm Veat has provided over 487 investment consultations and possesses experience advising startups and companies on investment attraction. In the first half of 2024, Law firm Veat entered the TOP 5 in the Bloomberg League Table based on the number of transactions, demonstrating Law firm Veat’s unique expertise in investment and M&A areas.
If you need legal advice related to startup investment attraction and RCPS, please contact Law firm Veat.