“When raising investment, you must definitely confirm the relevant articles of incorporation. Please check with Law firm Veat!”

Investing in startups can lead to the preparation of investment agreements with investors and related performance matters, as well as the preparation of share issuance (capital increase) procedures due to investor capital deposits.

Since resolutions are made that do not comply with the company’s articles of association, problems may arise, so it is necessary to verify the articles of association and confirm whether share issuance to investors is possible according to the investment agreement.

What are the provisions in the articles of association that must be confirmed when investing?

Law Firm Veat provides three checklists to guide you through the process. For more detailed guidance, please contact Law Firm Veat.
 

1. Total number of shares the company will issue.

The ‘total number of issued shares’ or ‘authorized capital’ refers to the number of shares the company will issue, within the limits of the number of shares. Share issuance is possible within this limit, and if the number of shares exceeds the limit during share issuance, it is necessary to revise the articles of association through a share issuance increase.

And when the total number of shares to be issued is changed, a resolution must be made through a shareholders’ meeting special resolution, and the total number of shares must be carried out through the registration of the company’s articles of association.

2. Types of shares the company will issue.

As for the types of shares the company will issue, it is necessary to verify whether common stock is based and whether priority stock is also issued. During investment, priority stock is often issued, and there are various types of priority stock, so it is good to define various types of priority stock in the articles of association.

In short, it is necessary to verify whether there are provisions for issuing priority stock (equity stock), and whether these provisions are consistent with the provisions in the investment agreement.

3. Subscription Rights.

Shareholders have the right to receive shares allocated to them in proportion to the number of shares they own (Article 418(1) of the Companies Act). Despite Article 1 of the aforementioned provision, it is possible to issue shares to non-shareholders in accordance with the provisions of the articles of association (Article 418(2) of the Companies Act).

When a major investor invests further, it is necessary to verify whether there are provisions in the articles of association for allocating shares to third parties (non-shareholders).

Is there a basis in the articles of association for allocating shares to third parties?

If there is a basis, it is necessary to confirm that there is a clear basis for the investor to allocate shares to the investor.

Thus, we have explored the most frequently occurring changes to the articles of association when investing in startups. As the provisions in the articles of association may vary and there is a need to verify the registration matters, if you need a more precise confirmation, please contact Law Firm Veat.

Law Firm Veat is a law firm that best understands startups, with extensive experience and advisory experience from the establishment, operation, investment, and exit (capital recovery) of numerous startups. Specifically, Law Firm Veat provides definitive solutions at all stages, from the drafting and establishment of the company’s articles of association to the startup’s specific characteristics.

Law Firm Veat’s Startup, Corporate Legal Matters Key Case
 

• Provided legal advice on stock purchase option agreements and non-disclosure agreements for S Co, which provides AI-based services.
• Provided legal advice on the period of shareholder meeting reduction related to the exercise of shareholder purchase rights for C Co.
• Reviewed civil and criminal remedies related to the retirement of a domestic company’s employee M Co.
• Provided legal advice to P Co, which provides VR services, on the feasibility of conducting shareholder meetings remotely (virtual), drafting corporate regulations, reporting obligations, and methods for informing employees about corporate regulations.
• Provided legal advice on the number of business sites for venture company W Co, stock options, and etc.
• Provided multiple legal advice including W Co, a venture company, providing legal advice on multiple areas such as multiple business sites and stock options.