[Overseas Investment] Important Points to Consider When Investing in Overseas Funds
Article posted in 2025-04-30 16:04:16 | VEAT
Law firm Veat recently received a request from a newly listed company on the KOSDAQ (hereinafter referred to as the "client") to review the legality and appropriateness of the investment in an overseas private equity fund as a limited partner (LP) during the investment process.
Important Considerations for Overseas Private Equity Fund Investment #1: Identifying Legal Risks Through Investment Contracts
Overseas private equity funds generally provide investment guidance through a PPM (Private Placement Memorandum). The PPM document can be seen as a kind of investment guide that explains the nature of the fund, operating strategy, and risk factors to investors. However, there is a separate key document that determines the legal relationship between the overseas private equity fund and the investor. That is the Limited Partnership Agreement (hereinafter referred to as the "LPA").
In other words, the LPA contains all the key details of the relationship between the investor and the overseas private equity fund, including the fund’s term, the limited partner (LP)'s investment capital contribution, profit and loss sharing method, management fees, the fund’s decision-making process, and the rights and limitations of the limited partner.
If legal risks are not clearly identified during the investment process in an overseas private equity fund, there is a risk of unexpected investment losses or disputes with the fund later. Therefore, the LPA, which allows for the identification and management of these legal risks, must be carefully reviewed by the LP participating in the overseas private equity fund.
Accordingly, Law firm Veat reviewed the legality and appropriateness of all documents, including the PPM, LPA, and Subscription Letter, between the client and the overseas private equity fund in this matter.
Important Considerations for Overseas Private Equity Fund Investment #2: Verification of Compliance with Foreign Exchange Transaction Reporting Procedures
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Foreign Exchange Transaction Act Article 3 (Definitions) ① The terms used in this Act shall have the meanings as follows. 18. “ a. Acquisition of securities issued by a corporation established according to foreign laws (including a corporation under establishment) or lending money to that corporation in order to establish a continuous economic relationship with that corporation through a transaction or act as stipulated by Presidential Decree. b. An act of paying funds for establishing, expanding, or operating a branch office overseas or for overseas business activities as stipulated by Presidential Decree. |
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Enforcement Ordinance of the Foreign Exchange Transaction Act Article 8 (Overseas Direct Investment) ① Paragraph 1, Article 3, Paragraph 1, Item 18 of this Act means the following items as stipulated by Presidential Decree. 1. Investment with a ratio (the ratio of the stock or contributed equity to the total issued stock or contributed equity of the foreign corporation) exceeding 10% of 100% in acquiring stock or contributed equity in order to participate in the management of a corporation established according to foreign laws (including a corporation under establishment). (The ratio of the total stock or contributed equity is applicable when acquiring stock or contributed equity jointly. This term is hereinafter applicable in this paragraph as “investment ratio”). 2. ~ 4. (Omitted) |
It is necessary to pay attention to the Foreign Exchange Transaction Act when making a capital contribution to an overseas private equity fund. In particular, if the contribution falls under overseas direct investment according to the Foreign Exchange Transaction Act, the reporting procedure stipulated in the Act must be followed, and the contents of the report must be carefully managed to ensure that they do not conflict with the actual contract details.
Specifically, in this matter, the overseas private equity fund is the counterparty for the investment, but the Foreign Exchange Transaction Act does not explicitly regulate investment in such overseas private equity funds. Also, in order to be classified as overseas direct investment, the investor must contribute equity to participate in the management of a foreign corporation, requiring a thorough review of whether participating as an LP in an overseas private equity fund constitutes participation in the management of a foreign corporation.
Law firm Veat conducted legal review tailored to the client's specific circumstances based on relevant laws and the position of related authorities, and accordingly provided guidance on the overall reporting procedure to the client.
Customized Legal Advice with Expertise in Overseas Investment from Law firm Veat
Deciding to invest, particularly contributing capital to an overseas private equity fund (Private Equity Fund), is not a simple matter for a company. Especially important, alongside investment returns and portfolio composition, is to properly understand and prepare for the legal structure and risks involved in that investment. Therefore, Law firm Veat reviewed the legality and appropriateness of the client’s capital contribution in this fund and successfully handled the matter by also acting as an agent for the necessary foreign exchange transaction reporting.
Law firm Veat has high expertise in the field of overseas investment. Based on numerous experiences and know-how in overseas investment, including reporting under the Foreign Exchange Transaction Act, we provide legal advice to minimize the legal risks associated with the client's overseas investment.
Therefore, if you have concerns about the procedures required by applicable laws or legal risks arising from the investment process, please feel free to contact Law firm Veat. Law firm Veat will provide customized legal advice tailored to your specific situation, allowing you to focus on your core business.
This case study can also be viewed on the Law firm Veat blog below.
- [Overseas Investment] Important Considerations When Investing in Overseas Funds
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