SOUTH KOREA Law and Practice Contributed by: Ohryung Lee, Joceline Park, Maria Chang and Hakrae Cho, Bae, Kim & Lee LLC
Both anti-dilution protections and pre-emption rights are frequently used. Venture capital firms may secure the right to consent to the issuance of securities, or include the issuance of securi - ties at a price lower than their subscription price as a ground for adjusting the conversion price, or secure the right to subscribe for new shares issued by the company pro rata to their relative shareholding ratios ( “pre-emption right” ). 3.6 Corporate Governance As a general matter, the following rights are usu - ally granted to venture capital investors in rela - tion to the company’s corporate governance. Right to Appoint Director(s) The venture capital investor will have the right to nominate a certain number of directors, and the parties to the investment agreement with the investor (typically the target company and the largest shareholder) will be contractually obliged to appoint person(s) nominated by the investor as director(s) by voting accordingly at a general meeting of shareholders. In Korea, directors of a company are listed in a company registry (which is a publicly available document), and there is no nationality or residency requirement for director - ship. Also, investors often seek and obtain the right to nominate an observer to the board of directors. For reference, in Korea, an observer is, unlike a director, a de facto position, which has no legal basis in the Korean Commercial Act. Consent Rights Over Material Matters The type of material matters over which the venture capital investor has a consent right may vary depending on the negotiation of the parties involved, but in general, they usually include amendments to the articles of incorpo - ration, changes in capital structure, fundamental changes in the company’s organisation (such as dissolution, liquidation, merger, division, division
and merger and business transfer), issuance of new securities, grant of stock options, and significant transactions (ie, those with a value exceeding a certain threshold). Information Rights The right to receive important financial/opera - tional information of the company, and the type of information that the investor has the right to receive may vary depending on the negotiations of the parties involved, but they often include financial statements, business plans and budget plans at certain intervals. 3.7 Contractual Protection The representations and warranties, cove - nants, and indemnity clauses and mechanisms observed in a financing round are similar to those included in an agreement for a typical M&A con - tract. Certain caveats to this are set out below. Representations and Warranties/Covenants A venture capital firm may not make representa - tions, warranties, or covenants in the investment agreement, or make only fundamental represen - tations and warranties (eg, incorporation or due authorisation) and basic covenants (eg, confi - dentiality obligations). However, if the investor is required to obtain any particular regulatory approvals (eg, clearance of merger filing or for - eign exchange filing) in relation to the execu - tion and performance of the agreement, the agreement will include representations, warran - ties and/or covenants related to obtaining such approvals. Target companies usually provide a fairly detailed set of representations and warran - ties relating to their operation and businesses, including financial statements, labour, intellec - tual property, real properties, etc.
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