Rent service platform’s new business model legality review.

Law firm Veat received a request from a rent service platform (hereinafter referred to as “the client”) to review the legality of the client’s new business model.

The client was planning a service where partner members purchase rental products, entrust the platform to operate them, and receive a fixed commission. They inquired with Law firm Veat, specializing in legal advice for startups, regarding the possibility of a violation of the “Act on Regulation of Similar Fundraising Activities” (hereinafter referred to as “the Similar Fundraising Act”).

Law firm Veat’s startup advisory team meticulously analyzed whether the purchase and entrusted operation of rental products, along with the commission payment method, could potentially violate the Similar Fundraising Act, primarily focusing on the “Supreme Court Ruling of July 9, 2020, in Case No. 2018Do5519,” which dealt with apparent product transactions, and the “Supreme Court Ruling of December 9, 2005, in Case No. 2005Do7120,” which concerned the payment of installments on commercial properties.

In addition, we thoroughly reviewed the client’s specific business model details to provide detailed guidance on the similarity of the business model to a similar fundraising activity.

Why legal review of the Similar Fundraising Act is necessary when introducing a new business model

Similar fundraising activities refer to activities of procuring funds from an indefinite number of individuals without obtaining licenses or permits as required by other laws such as the Banking Act and the Savings Bank Act, and without registration or notification (Similar Fundraising Act Article 2).

1. Promise of capital contribution: An activity of receiving capital contributions by promising to pay the full amount or more than the full amount of future capital contributions.
2. Money collection: An activity of receiving money under the name of deposits, deposit money, etc.
3. Issuance of bonds: An activity of issuing and selling bonds after promising to repurchase them at a future price or higher than the selling price.
4. Economic loss compensation: An activity of compensating for economic losses with money or securities and receiving money under the name of membership fees.

Because these four activities can undermine confidence in the financial market and cause significant damage to investors, Article 3 of the Similar Fundraising Act explicitly prohibits them by stating, “No one shall engage in similar fundraising activities.”

Startups need to legally review whether their introduction of new business models could violate the prohibited conditions under the Similar Fundraising Act. We recommend consulting with experienced attorneys with a deep understanding of corporate advisory services to review the business model and explore ways to mitigate legal risks.