![handle is hein.journals/jkorl23 and id is 1 raw text is: Journal of Korean Law I Vol. 23, 1-50, February 2024
Accommodating Venture Capital
Investors' Contractual Rights in the
Korean Corporate Law*
Narae Lee**
Abstract
With the remarkable growth of the Korean startup ecosystem, VC investors, one of the key
players in startup fundraising, have used contractual protections to mitigate the risks associated
with the high risks and uncertainties of startup investments. Although VC investors have
typically acquired consent rights for essential decisions regarding startups through contracts,
the effects of these contractual rights have been controversial in Korea, mainly due to conflicts
with the principle of equal treatment of shareholders. Recently, the Korean Supreme Court
clarified some of the uncertainties by allowing for exceptions to the principle when three
requirements are met. However, ambiguities remain when it comes to applying the court's
standards to practices because they are context-specific.
This article finds the root causes of the complexities concerning investors' contractual rights
from the discrepancies between the Korean corporate law framework and the VC investment
schemes from Silicon Valley. In response to the need to diversify funding options for startups,
this article proposes that Korean corporate law allows startups to structure flexible governance
to accommodate VC investors' control rights over startups through the articles of incorporation.
Alternatively, startups can be authorized to arrange VC investors' control rights at the board
level by requiring the prior consent of VC-nominated directors for the board's approval on major
corporate decisions. The extensive private ordering of startups should be controlled and
monitored by ex post review through the enhanced application of fiduciary duties of
VC-nominated directors and VC investors as controlling shareholders.
KEYWORDS: VC investment, Startups in Korea, Consent rights, Investors' rights, The
principle of equal treatment of shareholders, Preferred shares.
Manuscript received: December 27, 2023; review completed: January 16, 2024; accepted: February 7, 2024.
* Please note that this article represents an independent contribution, building upon the
foundations in the author's previous Ph.D. dissertation titled Seutateueob-ui jibaegujo-e
gwanhan beobjeog yeongu [A Study on the Legal Aspects of Startup Governance in Korea]. While
drawing on the insights gained from that earlier research, the content, analysis, and
conclusions presented herein have been developed anew, reflecting the evolution of the
author's understanding of the subject matter.
** Attorney at Law, Bliss Law Office, South Korea. Ph.D. in Commercial Law, College of
Law at Seoul National University.](ViewImageLocal?handle=hein.journals/jkorl23&div=1&collection=&method=preview&ext=.png&size=3)
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