Director appointment, preliminary review of the necessity of merger control notification is essential.
Article posted in 2025-04-11 14:20:51 | VEAT
Law firm Veat received a request from AI startup Company A (hereinafter "the client") to review the need for a business combination filing.
Recently, in the process of startup investment and M&A (Mergers and Acquisitions), external investment and changes in the board of directors are frequently occurring. In particular, when a large company participates as an investor and appoints a director nominated by the company or an existing director retires, the obligation to file a business combination may arise under the Fair Trade Act, so a legal review is necessary in such cases.
Law firm Veat thoroughly reviewed the client's determination of whether a business combination filing is required under the Fair Trade Act based on changes in the board of directors and changes in the total number of directors.
The Importance of Business Combination Filing
The Business Combination Filing System is a key procedure under the Fair Trade Act to preliminarily check the possibility of limiting market competition. When certain conditions are met, such as mergers, stock acquisitions, and concurrent offices, a filing must be made with the Fair Trade Commission. Failure to comply with the filing obligation may result in sanctions such as fines, corrective measures, and criminal penalties, and there is also a significant risk of reputational damage and additional costs for the company.
In particular, startups or medium-sized enterprises should thoroughly review the need for a filing even if they appear to be merely personnel changes when raising external investment and changing the composition of the board of directors, as this may constitute a business combination. A lack of understanding of the Business Combination Filing Guidelines and related laws can lead to adverse consequences, so it is important to seek advice from professionals to minimize risks.
Potential for Concurrent Offices by a Large Company, Occurrence of Filing Obligation
The business combination filing system under the Fair Trade Act applies not only to M&A (Mergers and Acquisitions) but also to changes in organizational structure, such as concurrent offices that meet certain conditions. In particular, when a large company is involved as a party, the scope in which it may be deemed a business combination is interpreted more broadly. According to the Fair Trade Commission's [Business Combination Filing Guidelines], a structure in which a large company appoints an employee or director of another company as a director may be deemed a business combination, and a filing obligation may arise if certain criteria are met.
For example, it is common in startup investments for an investor to inject capital into an investee company and acquire a certain stake, and at the same time, designate employees of the investor as directors to enter the board of directors. In this case, if the investor is a large company and the designated director is an incumbent employee of the investor, there is a possibility that it may fall under one of the requirements for a business combination under the Fair Trade Act.
<Key Elements to Consider When Determining the Need for Business Combination Filing>
Whether organizational changes such as changes in the composition of the board of directors or appointments/retirements of directors actually lead to a business combination filing obligation cannot be determined solely on the basis of formal requirements. The following key elements must be considered comprehensively.
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- Size and Type of Parties Companies with sales exceeding a certain amount under the Fair Trade Act are classified as ‘large companies,’ and a filing obligation may arise even with a concurrent office in structures centered around these companies. - Actual Effects of Concurrent Office The key is whether it is a purely formal concurrent office or whether it leads to actual participation in management or the exercise of control. The results may vary depending on the title and scope of duties of the director (representative director, inside director, auditor, etc.). - Number and Changes in Concurrent Directors An increase in the number of concurrent directors or the appointment of new concurrent directors may be subject to filing. Conversely, if the number of concurrent directors decreases or only the individual changes without changes to the title or number of people, the filing obligation may be waived. - Timing of Appointments and Retirements If appointments and retirements occur on the same date, it is generally considered that there is no substantial change to the organization, and it is not considered a business combination. |
Exclusion from Filing Possible for Simple Personnel Changes in the Same Position
Not all appointments or retirements of directors necessarily result in a business combination filing obligation. According to the Fair Trade Act and the Business Combination Filing Guidelines, the filing obligation may be waived if certain conditions are met. For example, if there is no change in the number and title of directors, the number of concurrent directors decreases, or appointments and retirements occur simultaneously on the same date, it is not considered subject to a business combination filing.
However, even if these conditions are met, the determination of whether a business combination filing obligation exists may vary depending on the specific facts and interpretation of the case, so a careful judgment based on legal review is always required in practice.
Law firm Veat has thoroughly analyzed the client's specific situation and provided the best solution based on its extensive practical experience in the Fair Trade Act and the Business Combination Filing Guidelines, comprehensively reviewing related precedents, legal interpretations, and the latest practical rulings.
Law firm Veat has provided legal solutions tailored to each industry, providing services to a wide range of companies from startups to large corporations, anticipating and preventing legal risks that may arise in investment structures, governance design, and business combination issues. In particular, it has proven expertise in areas such as business combination filings, responses to the Fair Trade Commission, and competition restriction analysis, and supports the stable growth of its clients.
If you need legal advice regarding business combination filings related to director appointments or retirements, or any other Fair Trade-related matters, please feel free to contact Law firm Veat.
This case study can also be viewed on the Law firm Veat blog.
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Law firm Veat