-
Blogs Corporate & BizIs a Term Sheet Legally Binding in Korea? Key Clauses to Review Before Signing
When a startup receives a term sheet from an investor, it may be tempting to treat the document as a preliminary summary that can be signed before the definitive investment agreement is negotiated. However, a term sheet is not necessarily non-binding simply because it is signed at a preliminary stage. Depending on its wording and the parties’ intent, the entire document may be non-binding while certain provisions—such as confidentiality, exclusivity, obligations to execute a definitive agreement, or liability for breach—may have legal effect. Before signing a term sheet, therefore, the key question is not simply what the document is called, but which terms have been agreed upon and which provisions are intended to create legally binding obligations. 1. What Is a Term Sheet? A term sheet is a document used to outline the principal terms of a proposed investment before the parties enter into a definitive investment agreement. It commonly addresses matters such as: Investment amount Company valuation Investment structure Type of shares or securities to be issued Key investor rights Conditions for proceeding with the investment Korean law does not establish a separate statutory category specifically for a “term sheet.” Accordingly, whether a document is titled a Term Sheet, Memorandum of Understanding (MOU), Letter of Intent (LOI), or preliminary agreement does not by itself determine its legal effect. The Supreme Court of Korea has held that a contract does not require agreement on every conceivable matter, but there must at least be a sufficiently specific meeting of minds regarding its essential or material terms, or an agreed method by which those terms can later be determined. (Supreme Court of Korea, March 23, 2001, Case No. 2000Da51650) 2. Does Signing a Term Sheet Make It Legally Binding? Not necessarily. Signing a term sheet does not automatically mean that the entire document has the same legal effect as a definitive investment agreement. At the same time, a term sheet cannot automatically be treated as having no legal effect merely because it precedes the final agreement. The central issue is the extent to which the parties intended to be legally bound by the terms contained in the document. In a Supreme Court case involving an MOU for a corporate acquisition, the document expressly provided that it was legally binding and required the parties to execute a definitive agreement by a specified deadline. The Court examined the actual obligations and provisions agreed upon by the parties rather than disregarding the document simply because it was labeled an MOU.(Supreme Court of Korea, July 14, 2016, Case No.) 2012Da65973 Accordingly, particular attention is required where a term sheet contains provisions concerning: A deadline to execute the definitive agreement Exclusive negotiations Confidentiality Deposits or other security for performance Liquidated damages or other consequences of breach Each provision should be reviewed separately to determine whether it was intended to create a legally enforceable obligation. 3. Which Clauses Should Be Reviewed in a Term Sheet? 🔹Key Clauses to Review in a Term Sheet Clause What It Covers Key Question Investment Terms Amount, valuation, investment structure Are the terms final? Exclusivity Restrictions on negotiations with other investors What is the scope and duration? Confidentiality Protection of information exchanged during negotiations What information is covered? Definitive Agreement Future execution of the investment agreement Is execution mandatory? Binding Effect Obligations intended to be legally enforceable Which provisions are binding? A term sheet may state that the document as a whole is non-binding while expressly providing that certain clauses, such as confidentiality or exclusivity, are legally binding. Conversely, even where the document does not clearly state whether it is binding, its legal effect may still require consideration of its specific wording, the course of negotiations, and the parties’ intentions. 4. How Is a Term Sheet Different from an Investment Agreement? A term sheet is generally used to identify and organize the principal commercial terms before a definitive agreement is executed. A definitive investment agreement, by contrast, sets out the detailed rights and obligations governing the actual investment. For example, a term sheet may provide that an investor will invest KRW 1 billion based on a particular company valuation. The definitive investment agreement may then address additional matters such as: Type and number of shares to be issued Payment and closing date Conversion or redemption rights Investor consent rights Restrictions on share transfers Representations and warranties Events of default and remedies A term sheet should therefore not be viewed merely as an informal summary. It may establish the framework for subsequent negotiations and materially affect the terms of the definitive investment agreement. 5. What Should You Check Before Signing a Term Sheet? 🔹Scope of Legally Binding Provisions Determine whether the entire document is intended to be binding or whether only specific provisions—such as confidentiality or exclusivity—create enforceable obligations. 🔹Whether the Investment Terms Are Final Check whether the valuation, investment amount, ownership percentage, and type of securities are final or remain subject to due diligence, investment committee approval, or further negotiation. 🔹Scope of Exclusivity Where the company is restricted from negotiating with other investors for a specified period, the duration and scope of that restriction should be clearly reviewed. For a startup actively raising capital, an overly broad exclusivity provision may significantly restrict other fundraising opportunities. 🔹Obligation to Execute the Definitive Agreement There is an important distinction between an agreement to continue negotiations in good faith and an obligation to execute a definitive investment agreement by a specified date. The Supreme Court case discussed above, Case No. 2012Da65973, involved an MOU that expressly imposed an obligation to execute the final agreement by a specific deadline. 🔹Liability if the Transaction Does Not Close A term sheet may also contain provisions relating to deposits, transaction expenses, liquidated damages, or other consequences if the transaction is terminated. Under Article 398 of the Korean Civil Act, parties may agree in advance on the amount of damages payable in the event of non-performance, and an agreed penalty is generally presumed to constitute liquidated damages. Accordingly, term sheet review should address not only the proposed investment terms but also what obligations arise upon signing and what liability may remain if the investment does not proceed. 6. Can a Party Walk Away If the Term Sheet Is Non-Binding? A non-binding term sheet does not necessarily mean that negotiations can be terminated without legal consequences in every circumstance. The Supreme Court of Korea has held that where one party creates a legitimate expectation that a contract will be concluded, the other party acts in reliance on that expectation, and negotiations are then terminated without reasonable grounds, liability in tort may arise depending on the circumstances.(Supreme Court of Korea, June 13, 2013, Case No. 2010Da65757) This does not mean that liability arises whenever investment negotiations fail. The stage of negotiations, the representations made by the parties, the extent of reliance, and the reasons for terminating negotiations must be considered together. 7. Why Legal Review of a Term Sheet Matters The legal effect of a term sheet cannot be determined solely by whether the document has been signed or whether it is described as preliminary. It is necessary to examine: Which investment terms have already been finalized Which provisions are legally binding Whether the parties are obligated to enter into a definitive agreement Whether exclusivity or confidentiality obligations apply What consequences follow if the transaction does not close Because a term sheet may become the basis for the subsequent investment agreement, companies and investors should review not only valuation and investment amount but also provisions that may restrict further negotiations or create liability if the transaction is terminated. Decent Law Firm advises startups, companies, and investors on term sheets and investment agreements, including the scope of legally binding obligations and contractual risks that should be addressed before proceeding with an investment.
2026-08-12 -
Blogs Corporate & Biz
Generative AI and Personal Data: What Businesses Should Check Before Uploading Customer Information or Contracts
Businesses are increasingly using generative AI to review contracts, summarize meetings, respond to customer inquiries, and draft documents. However, when contracts or other materials entered into an AI service contain personal data relating to customers or employees, the issue extends beyond operational efficiency. It may raise concerns regarding personal data processing, confidentiality, and the management of internal business information. Businesses should therefore understand how an AI service stores and uses input data and establish internal rules that reflect how generative AI is actually used within the organization. How Is Information Entered into Generative AI Processed? From the user’s perspective, generative AI appears to involve simply entering a question and receiving a response. In practice, however, prompts and uploaded files are transmitted to the service provider’s systems. Depending on the service policy and account type, they may be retained as conversation records or system logs and may also be used to improve the service. Before entering business materials, companies should check: ▪️ Whether input data may be used to train the AI model ▪️ How long conversations and uploaded files are retained ▪️ Whether conversations and uploaded materials can be deleted ▪️ In which country and on which servers the data is processed ▪️ What access permissions are granted when the AI is connected to external applications or internal systems Using a paid or enterprise account does not automatically resolve every data protection issue. The relevant contractual terms and actual data-processing arrangements must also be reviewed. Is Information No Longer Personal Data Once the Name Is Removed? Removing a customer’s name or contact information from a contract does not necessarily mean that the remaining information is no longer personal data. Personal data includes not only information that directly identifies an individual, such as a name, but also information that may identify a person when combined with other readily available information. Even after a name has been removed, an individual may still be identifiable through a combination of information such as: ▪️ The company name and a specific job title ▪️ The contract date and transaction amount ▪️ The employee’s department and performance evaluation ▪️ Detailed consultation history and family relationships ▪️ A case number and the location of a dispute A company name alone is generally information about a legal entity. However, when combined with a specific position, transaction details, or other contextual information, it may make an individual employee or representative identifiable. Businesses should therefore remove information that is unnecessary for the intended task rather than deleting names alone. Actual names, contact details, company names, and similar identifiers may also need to be replaced with fictional or generic information. Does Entering Customer Information Automatically Violate Korea’s Personal Information Protection Act? Entering customer information into a generative AI service does not automatically constitute a violation of Korea’s Personal Information Protection Act, commonly referred to as the PIPA. However, a business may generally use personal data only within the scope of the original purpose of collection and an appropriate legal basis. It is therefore necessary to assess whether the intended AI use is related to the original processing purpose and whether additional consent or another legal basis is required. The relationship between the business and the AI service provider must also be reviewed. The applicable legal framework may differ depending on whether the provider processes data solely on the company’s instructions or also uses the input data for its own purposes, such as model training or service improvement. Depending on the actual arrangement, the use of the service may involve outsourced processing, third-party provision, or other forms of data processing. If personal data is transferred to servers or service providers located outside Korea, the requirements governing overseas transfers must also be considered. The applicable rules cannot be determined solely from the fact that customer information was entered into an AI service. Businesses should review the actual contractual structure and data flow, including: ▪️ The legal basis for using personal data in the relevant AI task ▪️ The purposes for which the service provider uses input data ▪️ Whether the data is used for training or service improvement ▪️ The data-retention period and deletion procedures ▪️ The server locations and countries to which data is transferred ▪️ The involvement of subprocessors or downstream service providers ▪️ How input data is handled after the service contract ends Contracts and Consultation Records Raise More Than Personal Data Issues Contracts and customer consultation records may contain confidential business information in addition to personal data. Examples include: ▪️ Transaction terms and supply prices ▪️ Sales strategies and business plans ▪️ Technical materials and development information ▪️ Confidentiality obligations agreed with customers or business partners ▪️ Strategies for litigation, investigations, or other disputes ▪️ Non-public financial information and internal decision-making materials Entering such information into an external generative AI service may raise issues under the PIPA, but it may also create risks involving contractual confidentiality obligations, trade secret protection, customer security agreements, and internal company policies. A corporate generative AI policy should therefore cover not only personal data but also trade secrets, contractual information, technical materials, and dispute-related documents. Internal Rules Businesses Should Establish for Generative AI Use When employees are left to decide individually how generative AI should be used, the company may be unable to identify what information has been entered into which external service. Rather than issuing a general instruction not to enter personal data, businesses should establish practical and specific rules that employees can follow in their day-to-day work. 1. Approved Services and Accounts The company should designate the generative AI services and account types that employees are permitted to use. Employees should also be prohibited from entering business materials through personal accounts or unapproved services. 2. Prohibited Input Data The company should clearly define the information that must not be entered into generative AI services. This may include resident registration numbers, bank account information, health information, other sensitive or high-risk personal data, trade secrets, non-public contractual terms, and materials relating to litigation or criminal investigations. 3. Approval Procedures for High-Risk Documents High-risk materials, such as contracts, human resources documents, and customer consultation records, may be made subject to prior review or approval by the responsible department. 4. Standards for Removing or Replacing Identifying Information Businesses should establish standards for removing or replacing information that could identify an individual or a transaction party, including names, contact details, company names, and transaction amounts. Rather than uploading an entire contract, employees should extract only the clauses required for the relevant task. Actual customer information may also be replaced with fictional names or sample data. 5. Conversation History and Model-Training Settings The company should determine whether the service allows input data to be excluded from model training, whether conversation history can be disabled, and how deletion features operate. 6. Internal Reporting and Incident Response Employees should be required to report promptly if personal data or confidential business information is entered into an AI service by mistake. The company should also establish procedures for deleting records, disabling external integrations, requesting deletion from the service provider, and taking any other necessary measures. What Should a Business Do If Customer Information Has Already Been Entered? If an employee mistakenly enters customer information or an internal document into a generative AI service, the company should first stop any further sharing or use of the resulting output. The following matters should then be reviewed: ▪️ Which account and AI service were used ▪️ What personal data or confidential information was entered ▪️ Whether the conversation and uploaded files can be deleted ▪️ Whether the service was connected to any external applications ▪️ Whether the information may have been used for training or service improvement ▪️ Whether a third party may have gained access to the information Where necessary, the company should delete the conversation history and uploaded files, revoke external access permissions, and request that the service provider stop processing or delete the relevant information. Whether the incident requires a personal data breach report or notification to affected individuals should be determined by considering the type and volume of information involved, the possibility of third-party access, whether the data has been deleted, and the potential harm to the individuals concerned. Effective Generative AI Use Requires Governance, Not Just Prohibition Generative AI can improve efficiency in contract review, document drafting, and customer communications. However, when its use is left entirely to individual employees, a business may have little control over where customer information and internal documents are transmitted or how they are subsequently used. Businesses should establish specific rules regarding approved services, prohibited data, the removal or replacement of identifying information, approval procedures for high-risk documents, and incident response. Decent Law Firm advises businesses on the legal use of generative AI, including compliance with Korean personal data protection requirements, review of service terms and data-processing agreements, overseas data transfers, trade secret protection, and the preparation of internal AI-use policies. This content is provided for general informational purposes only and does not constitute legal advice regarding any specific matter or business.
2026-07-24 -
Blogs Corporate & Biz
Korea’s AI Basic Act Six Months On: Disclosure and Labeling Duties for Generative AI Businesses
Korea’s AI Basic Act took effect on January 22, 2026. Under the Act, businesses that provide generative AI products or services are subject to transparency obligations. Compliance, however, does not end with adding a notice to a service screen. The applicable legal risks depend on the AI model used, the information entered by users, where that information is transferred, and how the generated output is used. Advance Disclosure and Output Labeling Are Separate Obligations Article 31 of the AI Basic Act divides transparency obligations into two categories. First, an AI business operator intending to provide a product or service based on generative AI must inform users of that fact in advance. Second, when generative AI or an AI-powered service produces content, the business must indicate that the output was generated using AI. For example, a chatbot or AI document-generation service may need to disclose its use of generative AI through its terms of service or user interface before the service is used. Separately, text, images, audio, or video generated by the service may require an AI-generated content label. Synthetic audio, images, and video that could easily be mistaken for real content require particularly clear disclosure. In practical terms: Before use: disclose that the product or service uses generative AI. After generation: indicate that the resulting content was generated using AI. AI-Generated Content Does Not Always Require a Visible Watermark The required label does not necessarily have to be a visible watermark. The Enforcement Decree permits both: ▪️ Human-readable labeling ▪️ Machine-readable labeling Where only a machine-readable method is used, users must still be informed at least once, through text, audio, or another accessible method, that the content was generated using AI. All or part of the disclosure and labeling requirements may not apply where: ▪️ The service name or interface already makes the use of AI obvious ▪️ The AI is used exclusively for the operator’s internal business purposes ▪️ A separately issued government notice recognizes an exception The internal-use exception should be applied carefully. Materials initially generated for internal use may fall outside the exception once they are included in advertisements, customer reports, consultation materials, or other externally distributed content. Businesses should therefore distinguish between outputs that remain within the service and outputs that can be downloaded, shared, or provided to customers. Businesses Using External AI APIs May Also Be Covered A business does not need to develop its own AI model to fall within the scope of the AI Basic Act. The Act also covers businesses that use AI developed by another provider to offer AI products or services. A company may therefore qualify as an AI business operator where it connects an external large language model through an API and provides services such as: ▪️ AI chatbots ▪️ Image-generation tools ▪️ Document drafting or summarization ▪️ Automated customer consultation The key question is not who developed the underlying model. What matters is whether the company uses AI to provide a product or service to users. Businesses using third-party APIs should therefore review whether they are subject to advance disclosure and AI-output labeling obligations. Disclosure Compliance Is Only One Part of the Legal Review Generative AI services commonly send user inputs to an external AI model and return generated outputs to the user. This process may raise data protection and copyright issues that are legally separate from the labeling requirements under the AI Basic Act. 1. Personal Data Entered into AI Services Where customers or employees enter names, consultation records, contracts, photographs, or internal documents into an external AI service, the business should verify: ▪️ Whether input data is stored or used for model training ▪️ The location and country of the servers processing the data ▪️ Applicable retention periods and deletion procedures ▪️ Whether the arrangement constitutes outsourcing, third-party provision, or overseas transfer ▪️ Whether the data is retransmitted to plug-ins or other external services The legal classification should be based on the actual data flow rather than the name of the agreement with the AI provider. A privacy policy should accurately reflect how personal data is collected, transferred, retained, and deleted throughout the AI service structure. 2. Copyright in AI-Generated Outputs A business does not automatically acquire exclusive copyright merely because an image, document, video, or source code was generated using AI. Relevant considerations include: ▪️ The degree of human creative involvement ▪️ Whether the source materials were lawfully used ▪️ Whether the AI provider’s terms permit commercial use ▪️ Whether the output is substantially similar to existing protected works AI-generated content may also infringe third-party copyrights, image rights, or other intellectual property rights. Businesses using generated outputs for advertising, websites, software, games, or commercial publications should retain records of the model used, prompts, initial outputs, and subsequent human edits. AI Used to Evaluate Individuals May Qualify as High-Impact AI Not every generative AI service is classified as high-impact AI. However, additional review may be required where AI is used beyond basic drafting or guidance and affects a person’s rights, opportunities, or access to essential services. Relevant examples include AI used in: ▪️ Recruitment and applicant evaluation ▪️ Lending, credit scoring, and insurance assessment ▪️ Medical diagnosis or treatment-related decision-making ▪️ Student admission, selection, or performance evaluation For instance, an AI tool that summarizes a résumé may present a different level of legal risk from one that calculates an applicant’s probability of being hired. The assessment depends on how the AI output is used in the actual decision-making process. Where a system qualifies as high-impact AI, the operator may need to implement: ▪️ Risk-management measures ▪️ Procedures for explaining major decision-making criteria ▪️ User-protection procedures ▪️ Human management and oversight ▪️ Preparation and retention of relevant records Documents to Review Before Launching a Generative AI Service Legal review should not begin by drafting a disclaimer in isolation. A business should first map: ▪️ The AI model being used ▪️ The information entered by users ▪️ The data-transfer route ▪️ How generated outputs are used ▪️ Where human review takes place The following documents should then be aligned with the actual service structure. AI Disclosure and Labeling Notices Separate advance disclosure before use from labeling of generated outputs. Terms of Service Define the permitted use of AI outputs and procedures for handling errors, rights infringement, and user complaints. Privacy Policy Reflect the actual collection, processing, storage, overseas transfer, and deletion of personal data involving external AI providers. AI Supply Agreements and API Terms Review provisions concerning data use, cybersecurity incidents, intellectual property, service interruptions, and liability allocation. Internal AI Use Policy Establish restrictions and approval procedures for entering customer data, contracts, source code, and confidential business information into AI tools. Legal Review Based on the Actual AI Service Structure Under Korea’s AI Basic Act, generative AI transparency obligations are divided into advance disclosure before use and labeling of AI-generated outputs. In practice, however, legal risk extends beyond how a notice is displayed. Businesses should also review the use of external AI models, personal data processing and overseas transfers, rights in generated content, potential classification as high-impact AI, and the allocation of liability with AI vendors. Decent Law Firm’s Corporate Practice Group advises AI and technology companies based on their actual service functions and data flows. Our review covers the applicability of the AI Basic Act, disclosure and labeling design, privacy and copyright issues, external AI model agreements, and the legal documentation required for launching and operating AI services in Korea. This content is provided for general informational purposes only and does not constitute legal advice for any individual matter.
2026-07-22 -
Blogs Corporate & Biz
Toxic Clauses in Investment Agreements: Key Red Flags Startup Founders Must Check
The outcome of an investment deal is often determined by the information gap between a founder reviewing their first investment agreement and an investor who has negotiated dozens of them before. Common Investment Documents: SPA, SHA, and Term Sheet When startups raise investment, they usually encounter three core legal documents. ▪️Share Purchase Agreement (SPA) The SPA is the primary agreement governing the investor’s acquisition of newly issued shares. It typically covers investment amount, valuation, closing conditions, representations and warranties, and other key transaction terms. ▪️Shareholders’ Agreement (SHA) The SHA regulates the relationship among shareholders after the investment closes. This document often contains the provisions that most directly affect a founder’s control over the company and future exit strategy, including voting rights, board control, transfer restrictions, drag-along rights, and veto rights. ▪️Term Sheet The term sheet summarizes the core investment terms before the definitive agreements are signed. Although parts of a term sheet may be non-binding, it often becomes the framework for the final contracts. In practice, negotiating leverage decreases significantly once the term sheet is signed. Four Toxic Clauses Founders Frequently Overlook ▪️Liquidation Preference Liquidation preference gives investors the right to recover their investment — sometimes more than their original investment — before founders receive any proceeds in an acquisition, merger, or liquidation event. The economic impact depends heavily on: The multiple (1x, 2x, etc.) Whether the preference is participating or non-participating In some cases, founders may receive little to no proceeds even after a successful exit if the liquidation structure heavily favors investors. ▪️Anti-Dilution Protection Anti-dilution clauses protect investors if future financing rounds occur at a lower valuation. The most aggressive version is the “Full Ratchet” mechanism, which can severely dilute founder ownership. More balanced structures typically use a “Weighted Average” adjustment method instead. Founders should carefully review: Trigger conditions Calculation formula Scope of protected securities ▪️Drag-Along Rights Drag-along provisions allow majority shareholders or investors to force minority shareholders to sell their shares under the same terms during a company sale. Without carefully drafted protections, founders may be forced into an exit they do not support. Key issues to negotiate include: Minimum approval thresholds Minimum sale price Founder consent rights Protection against unfavorable deal structures ▪️Reserved Matters and Investor Veto Rights Reserved matters clauses require investor approval for certain company decisions. While some level of oversight is standard, overly broad veto rights can significantly restrict day-to-day management and strategic flexibility. These provisions sometimes extend beyond major corporate actions and into operational matters such as: Hiring decisions Annual budgets Business expansion New product launches Overly expansive veto rights can effectively undermine founder control. Founder Protection Clauses That Should Not Be Missing Reviewing toxic clauses is only part of the process. Equally important is ensuring that the agreement includes provisions protecting the founder’s long-term position. ▪️Tag-Along Rights Tag-along rights allow founders or minority shareholders to participate in a share sale initiated by major investors or controlling shareholders under the same terms and conditions. This prevents founders from being left behind in a partial exit transaction. ▪️Reasonable Non-Compete Restrictions Non-compete clauses are common, particularly when investors are concerned about founder departures. However, the scope must remain reasonable in: Duration Geographic coverage Industry definition Overly broad restrictions can make it difficult for founders to launch future ventures or continue working in their own field. ▪️Flexible Use of Investment Funds Some investment agreements impose rigid limitations on how capital can be spent. Excessively narrow restrictions may prevent startups from pivoting or adapting to market conditions. Maintaining flexibility in operational spending categories is often critical for early-stage companies. Why Startup Founders Should Involve a Lawyer Early Investment agreement review is not simply about proofreading a contract. A startup investment lawyer should help with: Identifying and negotiating toxic clauses Structuring founder protection provisions Anticipating future fundraising and exit scenarios Preparing negotiation strategies against investor revisions Balancing governance and operational flexibility Most importantly, legal review should begin at the Term Sheet stage. Once a founder signs a term sheet, investors often treat the agreed terms as commercially settled, making it far more difficult to renegotiate key provisions later in the process. In many startup investments, the best time to negotiate is before signing anything — not after.
2026-05-15 Naver Blog -
Blogs Corporate & Biz
M&A Legal Due Diligence Costs and Scope in Korea: A Practical Guide
The cost of M&A legal due diligence is not simply a lawyer’s fee. It depends on the size of the transaction, the complexity of the target company, and the scope of the review itself. For foreign companies and investors entering the Korean market, understanding how legal due diligence works is critical because the findings can directly affect pricing, indemnity structures, and even whether the transaction proceeds at all. What Is Legal Due Diligence in an M&A Transaction? Legal due diligence (LDD) is the process of identifying and reviewing the legal risks of a target company before completing an acquisition or investment. In Korea, legal due diligence is typically conducted after the signing of an LOI (Letter of Intent) and before the execution of the SPA (Share Purchase Agreement). Key review areas usually include: Material contracts and commercial arrangements Litigation and disputes Employment and labor issues Regulatory compliance Intellectual property rights Corporate governance and shareholder structure Licenses and permits Subsidiaries and overseas entities The purpose is not simply to “find problems,” but to assess legal exposure that may transfer to the buyer after closing. The results of due diligence often directly influence: Purchase price adjustments Representations & warranties (R&W) Indemnification clauses Escrow arrangements Closing conditions Deal restructuring decisions What Determines M&A Legal Due Diligence Costs? There is no fixed pricing standard for legal due diligence in Korea. Costs are generally determined by several combined factors. 1. Transaction Size Larger transactions typically involve: Broader review scope Higher legal exposure Increased reporting requirements More intensive negotiation support Cross-border transactions and strategic acquisitions usually require deeper review compared to early-stage investments. 2. Complexity of the Target Company Costs increase when the target company has: Multiple subsidiaries Overseas entities Large numbers of commercial contracts Regulated business operations Complex shareholder arrangements Convertible securities, SAFE, or stock option structures Industries such as fintech, crypto, healthcare, SaaS, and platform businesses often require additional regulatory analysis. 3. Scope of Due Diligence The scope of review is one of the biggest cost variables. • Full Scope Due Diligence A full-scope review examines the overall legal condition of the company in detail. This is commonly used in: Strategic acquisitions Large-scale M&A deals Transactions involving operational integration (PMI) While more expensive and time-consuming, it can significantly reduce post-closing legal risks. • Red Flag Due Diligence A red-flag review focuses only on major legal risks that could materially affect the transaction. This approach is often used by: Financial investors Venture capital firms Early-stage investors Buyers operating under tight timelines It is generally faster and less expensive, but risks outside the agreed review scope may remain unidentified. How Are Legal Due Diligence Fees Structured? In practice, Korean law firms usually structure due diligence fees in one of three ways. Hourly Billing Fees are calculated based on: Time spent Hourly rates of lawyers involved This model is commonly used when the review scope may change during the transaction. Fixed Fee A fixed fee is agreed upon based on: Defined review scope Estimated timeline Expected workload This structure offers budget predictability but may require additional fees if the scope expands later. Hybrid Structure Many mid-to-large transactions use a hybrid model: Base scope under a fixed fee Additional work billed hourly This approach balances flexibility with cost predictability. Data Room Preparation Also Affects Costs The quality of document organization can significantly impact due diligence efficiency. Well-structured VDRs (Virtual Data Rooms) reduce: Review time Additional document requests Follow-up interviews Reporting delays Poorly organized materials often increase both costs and transaction risks. Importantly, legal advisors can only assess documents actually provided to them. Missing or incomplete disclosures may limit the scope of legal responsibility and the reliability of the review itself. Why Due Diligence Findings Matter Legal due diligence findings can materially change the transaction structure. Purchase Price Adjustments Material legal risks may justify: Lower valuations Deferred payments Escrow retention Representation & Warranty Negotiations Discovered risks are often reflected in: Disclosure schedules Liability caps Survival periods Basket thresholds Specific indemnities Deal Restructuring or Termination Serious legal issues may lead to: Changes in acquisition structure Asset deals instead of share deals Conditional closing arrangements Transaction termination Proper Scope Design Is Critical One of the most common problems in M&A transactions is starting due diligence without clearly defining the review scope. When the scope is unclear: Costs become unpredictable Timelines expand Review items continue increasing Negotiations become inefficient A properly structured process usually follows this order: Define review scope Discuss fees and timeline Execute engagement agreement Open VDR and begin review Deliver due diligence report Reflect findings in SPA negotiations Legal due diligence should not be evaluated solely based on price. The more important question is whether the legal team can accurately identify transaction-critical risks and translate them into practical deal protections. Decent Law Firm advises domestic and international clients on M&A transactions, startup investments, cross-border acquisitions, and regulatory risk analysis in Korea. If you are considering an acquisition or investment in Korea and would like to discuss an appropriate due diligence scope and fee structure, our corporate advisory team would be happy to assist.
2026-05-11 Naver Blog -
Blogs Corporate & Biz
Startup M&A: Why It’s Back in Focus in 2026—and How to Use It Strategically
M&A is no longer a last resort. It has become a core strategy for accelerating growth. The global M&A market has clearly entered a recovery phase in 2026. As the pace of technological change continues to accelerate, companies are finding it increasingly difficult to keep up through internal development alone. As a result, acquiring critical technologies, data, and platforms through M&A has become a more prominent and practical strategy. This shift is especially visible in the startup ecosystem. Startup M&A as a Growth Strategy Today, many founders no longer view M&A as something to consider only when the company is struggling. Instead, it is increasingly used as a proactive tool to scale faster. Raising capital alone often has limits—whether in expanding market share, building in-house technology, or hiring top-tier talent. Acquiring a company with the capabilities you need can be a far more efficient solution. Common M&A approaches include: Horizontal Integration: Acquiring competitors or similar services to rapidly expand customer base and revenue (common in e-commerce, SaaS, and platform businesses) Acqui-hire: Acquiring teams with strong technical capabilities to secure both talent and intellectual property (frequent in AI, fintech, and legal tech) AI Roll-up Strategy: Acquiring underperforming companies and improving operational efficiency through AI (applicable across industries) In particular, industries such as healthcare, logistics, and legal tech—where data and automation are critical—are seeing a growing number of cases where larger SaaS companies acquire AI startups to enhance their product offerings. The Korean Market and Key Strategic Sectors In Korea, investment capital in 2026 is being concentrated in six key sectors: AI, biotech, content, defense, energy, and advanced manufacturing. Alongside this trend, founders are increasingly thinking beyond the traditional “fundraising → growth” model. Instead, a more strategic cycle is emerging: fundraising → strategic M&A → accelerated growth For startups operating with limited resources but facing intense competition, M&A can be one of the most powerful tools to quickly expand market presence and reshape the competitive landscape. When Should Your Company Consider M&A? For startups and growth-stage companies, there are several practical scenarios where M&A becomes highly relevant: Market Entry: When you need immediate access to local networks or infrastructure in a new market Technology Bottlenecks: When critical technology already exists externally but would take years to build in-house Team Building Challenges: When you want to onboard a proven, high-performing team at once Post-Investment Strategy: When you need to deploy capital efficiently after a major funding round However, M&A should never be pursued as an end in itself. A single transaction can impact shareholding structure, control, investor relations, tax, and employment matters. Without a clear post-merger integration (PMI) plan, even a well-executed deal may fail to deliver meaningful results. For Companies Considering M&A At Decent Law Firm, our Corporate Practice Group provides end-to-end legal support for startups, venture-backed companies, and SMEs throughout the entire M&A lifecycle. Our services include: Structuring and negotiating share purchase and asset transfer agreements Reviewing investment agreements and shareholder arrangements Conducting legal due diligence and transaction structuring Managing legal risks during post-merger integration (PMI) We approach M&A not as a one-time transaction, but as a continuous strategic process that directly impacts your company’s long-term growth. Ultimately, the key question is not whether to pursue M&A, but when and how to use it effectively. The right approach depends entirely on your company’s stage, resources, and strategic goals. If you are exploring whether M&A could be a viable growth strategy for your business, we encourage you to reach out. Our team will work closely with you to assess realistic options and design a tailored approach aligned with your objectives.
2026-04-27 Naver Blog -
Blogs Corporate & Biz
Quasi-Investment Advisory Businesses in Korea: Penalties Surge 3.3× — What Has Changed and What to Do Now
On April 20, 2026, the Financial Services Commission and the Financial Supervisory Service released the results of their 2025 inspection of quasi-investment advisory businesses. Out of 289 firms subject to document review, 105 firms were found to have committed 133 violations. Among the 49 firms selected for on-site inspections, 35 were fined a total of KRW 470 million. Compared to the previous year (22 firms, KRW 140 million), the number of enforcement actions increased by approximately 3.3 times. Notably, the regulators introduced “mystery shopper” inspections. Investigators joined paid membership services themselves to experience the actual service, allowing them to detect violations that are not easily identifiable from the outside. 1. Four Most Common Types of Violations With the advertising and disclosure rules introduced in August 2024 being fully enforced in 2025, violations have become more concentrated and clearly defined: Omission of Mandatory Disclosures Required statements such as “investment may result in loss of principal,” “no individualized investment advice,” and identification as a “quasi-investment advisory business” must be included in all advertisements. Even a single missing phrase constitutes a violation. Misleading Business Names Use of names or expressions implying affiliation with licensed institutions (e.g., “Securities,” “Financial Investment,” or references to regulatory bodies) is prohibited if it may mislead consumers. False or Unrealized Performance Claims Statements such as “expected monthly return of X%” are considered misleading if they present hypothetical or unrealized returns as typical outcomes. Loss Compensation or Profit Guarantee Statements Promises such as “full refund if losses occur” may be deemed unlawful guarantees under the Financial Investment Services and Capital Markets Act and are prohibited. 2. What Changes in 2026: Targeted Inspections and Deregistration Starting in 2026, regulators will implement targeted (risk-based) inspections. Firms will be classified as high-risk based on factors such as prior violations, complaint frequency, and advertising content, with enforcement resources concentrated accordingly. More importantly, enforcement is no longer limited to administrative fines. Repeated violations may lead to ex officio deregistration, effectively forcing businesses out of the market. The previous practice of continuing operations after paying fines will no longer be viable. 3. Compliance Checklist: What You Must Review Now 📌 For Existing Operators Mandatory Disclosures Ensure all marketing channels (blogs, Kakao channels, YouTube, etc.) clearly include required disclaimers. Performance Representations Review both current and past content to confirm that all performance figures are factual, realized, and not misleading. Business Name and Branding Assess whether your brand name may cause confusion with licensed financial institutions. 📌 For New Entrants Pre-Launch Advertising Review Conduct a full legal review of all marketing language before commencing operations. Terms and Conditions Remove or revise any clauses suggesting loss compensation or guaranteed returns. Channel Governance System Establish clear internal responsibility and periodic compliance checks for each marketing channel. Regulatory Risk Is No Longer Theoretical Advertising regulations for quasi-investment advisory businesses in Korea are highly detailed, and violations can lead not only to fines but also to business suspension or deregistration. Assuming “our advertising should be fine” is one of the most common — and costly — mistakes. A single compliance review at the outset can prevent penalties amounting to tens of millions of KRW. Decent Law Firm — Corporate & Compliance Advisory Decent Law Firm’s Corporate Practice Group provides practical, risk-based advisory services for: Ongoing review of marketing and operational structures Pre-launch compliance design for new market entrants Handling administrative penalties and deregistration risks Our approach goes beyond reviewing advertising language. We assess the entire service structure and operational model to identify regulatory exposure based on how authorities actually enforce the rules. If you are currently operating in Korea or planning to enter the market, a preliminary legal review can significantly reduce regulatory risk. Share a brief outline of your business, and we will provide an initial risk assessment tailored to your situation.
2026-04-21 Naver Blog -
Blogs Corporate & Biz
Startup Investment Contracts: Key Clauses Every Founder Must Review
You've probably heard it before: "Always have your term sheet reviewed before signing." Yet in practice, founders sign under pressure all the time — tight on cash, eager not to upset the investor, telling themselves they'll sort out the details later. It's one of the most common and costly mistakes in early-stage fundraising. Today's investment agreements are no longer simple documents. Milestone-based funding, KPIs, valuation adjustments, anti-dilution provisions, and redemption rights are all interconnected — and if you don't understand how they work together, you can lose meaningful equity and control without ever realizing it. This guide breaks down the trends we're seeing in Korean startup investment contracts right now, and what founders need to watch out for before they sign. 1. Why the Structure of Investment Contracts Has Changed Not long ago, founders could negotiate reasonably well by focusing on one question: how much equity for how much money? That's no longer enough. Modern investment agreements tie together valuation, milestone-based disbursements, anti-dilution mechanisms, redemption and repurchase rights, preferred share structures, drag-along rights, and rights of first refusal — all within a single document. Looking at any one clause in isolation is where founders get into trouble. As the funding environment has become more cautious, investors are building in more downside protection. That means founders need to be equally deliberate about guarding against excessive dilution and loss of operational control. Understanding how these contracts are structured before you sit down to negotiate can make a significant difference in the outcome. 2. Milestone-Based Funding: When Capital Doesn't Come All at Once One of the most notable shifts in recent Korean investment contracts is the move toward milestone-based disbursements. Rather than transferring the full investment amount upfront, investors release funds in tranches as the company hits pre-agreed targets. A typical structure might look like this: KRW 300 million at signing, an additional KRW 200 million upon reaching a monthly revenue target, and a final KRW 200 million tied to a product launch milestone. Before agreeing to this structure, founders should clarify three things. First, are the milestones defined precisely enough to be objectively measured? Vague language is a breeding ground for disputes. Second, what happens if a milestone is partially met — does disbursement pause entirely, or is there a proportional release? Third, who has the authority to determine whether a milestone has been achieved, and by what standard? The question isn't just whether the milestones sound reasonable on paper. It's whether your team can realistically hit them given your current resources, market conditions, and execution capacity. 3. KPI Definitions: Where Disputes Are Born As milestone structures have become more common, the question of which KPIs govern those milestones has become equally important. Founders are increasingly seeing metrics like MRR/ARR, retention rates, repeat visit rates, and conversion rates written into contracts — not just headline numbers like downloads or registered users. What matters more than the metric itself is how it's measured and over what time period. Take a seemingly straightforward target like "monthly revenue of KRW 100 million." Is that a one-time achievement, or does it need to be sustained for three consecutive months? Are refunds and discounts excluded from the calculation? Which data source governs — your internal accounting records or the settlement reports from your payment processor? These details should be spelled out explicitly in the contract. Ambiguity here is not a minor issue — it's where investor-founder disputes actually start. 4. Valuation, Dilution, and Anti-Dilution: What's Behind the Number Valuation is naturally where founders focus their attention. But the headline number matters far less than what happens to ownership percentages in subsequent funding rounds. Anti-dilution provisions protect existing investors when a later round closes at a lower valuation than the current one. The two most common mechanisms — full ratchet and weighted average — produce very different outcomes for founders. Full ratchet adjustments can significantly increase dilution; weighted average formulas tend to be more founder-friendly. Knowing which applies to your contract is essential. Refixing clauses deserve equal attention. These allow the per-share price to be retroactively adjusted if certain performance conditions aren't met. On the surface, your equity stake looks fixed. In practice, falling short of targets can trigger additional dilution you didn't plan for. A high valuation is worth celebrating — but only after you understand the dilution and adjustment mechanisms attached to it. 5. Penalties for Missed Milestones: Repurchase, Redemption, and Termination Wherever milestone structures exist, penalty provisions follow. Founders need to understand exactly what happens if targets aren't met. ✔️ Repurchase clauses require the founder to buy back the investor's shares if a milestone is missed. The key variable is price: is it the original investment amount, or does it include interest? ✔️ Redeemable Convertible Preferred Shares (RCPS) give investors the right to demand repayment under certain conditions, or to adjust the conversion ratio in their favor to protect their returns. ✔️ Contract termination clauses define how the agreement is unwound entirely if things go wrong, including how already-disbursed funds are settled. From a founder's perspective, the critical question is whether a missed milestone leaves the company any room to maneuver — or whether it creates an immediate liquidity crisis with no exit. You may not be able to eliminate these protections entirely, but their severity and scope are almost always negotiable. Before You Sign: Three Things to Check First Are the milestones and KPIs genuinely achievable given your team's current capacity and market conditions? What dilution and adjustment mechanisms are attached to the valuation, and how do they interact? And if milestones are missed, how severe are the penalties — and where are the limits? Getting clear on these three structural questions before you enter negotiations will put you in a materially stronger position. If any clause raises a red flag, or if the overall structure feels difficult to parse, we recommend reviewing the full contract rather than relying on a clause-by-clause reading. The risks in these agreements are often in how the provisions connect, not in any single term read in isolation. Decent Law Firm's Corporate Practice Team works with founders on investment contract reviews with a focus on practical risk — equity structure, dilution exposure, and penalty provisions. If you're approaching a closing, send us the key terms and we'll give you a clear, efficient assessment of where the real risks lie.
2026-04-20 Naver Blog -
Blogs Corporate & Biz
Why AI Startups in Korea Need IT Legal Counsel
Before you build, make sure your service is structured to survive legally — not just technically. The Best Time for Legal Advice Is Before You Launch Getting an AI model up and running, connecting APIs, and opening a beta service can happen surprisingly fast. But building a service that is legally sustainable — one that properly addresses data use, privacy, copyright, and liability — is an entirely different challenge. Legal counsel is most effective not after development, but at the service planning and data architecture stage. A last-minute terms review before launch is a patch, not a solution. The following questions need to be answered before you write a single line of code. What data can you legally collect, store, and use for training? Is it legally safe to use customer data for model fine-tuning? Who owns the copyright to AI-generated outputs, and who is liable when things go wrong? Building a service without addressing these questions means going to market with structural vulnerabilities already baked in. 3 Regulatory Risks Every AI Startup in Korea Must Address As of 2026, the regulatory environment for AI startups operating in Korea has crystallized around three key areas. First, Korea's AI Basic Act is now in effect, introducing formal requirements around explainability, safety, and accountability for AI services. Second, the Personal Information Protection Commission has introduced punitive fines and class action mechanisms, making data incidents an existential risk rather than a compliance footnote. Third, when your infrastructure combines third-party AI APIs with cloud and SaaS tools, failing to clearly define terms, licensing boundaries, and liability exposure means that in any dispute, the startup absorbs all the risk while platform providers walk away unaffected. If Any of These Apply to You, Get Legal Advice Now You should seek IT legal counsel if you are in any of the following situations. You are designing a data collection or AI training pipeline for a new service You are providing B2B white-label or custom solutions built on third-party AI APIs Your Terms of Service or Privacy Policy do not accurately reflect how your service actually works Your B2B contracts have unclear SLA terms, liability caps, or IP ownership provisions You have already launched but feel uncertain about your data, contract, or terms structure The assumption that "we can fix it after launch" is a costly one. The larger your service grows, the more expensive and disruptive it becomes to restructure the legal foundation underneath it. How Decent Law Firm's Corporate Legal Team Works Decent Law Firm goes beyond reviewing contracts and terms in isolation. We take an integrated approach — examining your service architecture, data flows, and business model together to identify and address legal risks before they become problems. Service structure and data flow analysis AI, privacy, and contract risk mapping Terms of Service, Privacy Policy, and internal policy review B2B and SaaS contract structure design Legal structuring for investment readiness and international expansion If you are building an AI service or have already launched but are uncertain about your legal structure, contact Decent Law Firm today.
2026-04-10 Naver Blog -
Blogs Corporate & Biz
Korea's E-Commerce Act Amendments: 3 Legal Risks for Platform and Commerce Operators
The proposed amendments to the Enforcement Decree and Enforcement Rules of Korea's Act on Consumer Protection in Electronic Commerce have significantly raised the legal compliance bar for platform and commerce businesses operating in the Korean market. This is not simply a matter of updating a few lines in your terms of service. The changes affect the full scope of operational structure — from how reviews are managed, to how payment screens are designed, to the extent of liability for C2C intermediary platforms. Here are the three risks that require the closest attention right now. 1. Review and Rating Operations: No Policy Means Liability The amendments are designed to require platforms to clearly disclose to consumers the rules governing user reviews and ratings. Specifically, platforms will need to communicate who is eligible to write a review, how long reviews remain posted, how ratings and scores are calculated, the criteria and procedures for removing or hiding reviews, and how users can contest a removal decision. The following situations already represent concrete legal exposure: Selectively removing or hiding critical reviews without publicly disclosed internal criteria, displaying sponsored or paid reviews in the same format as organic user reviews, and mixing undisclosed paid advertising placement into rating or ranking algorithms — all of these create regulatory risk under the amended framework. The bottom line is documentation. Precisely defining when reviews can be posted and when they can be taken down — across your terms of service, operational policies, and internal management manuals — is the most urgent compliance task right now. 2. Dark Pattern Regulation: A Baseline Risk for Every Commerce Operator The amendment package, together with consumer protection guidelines already in force, is tightening regulation of so-called dark patterns — deceptive interface design practices — across pricing, discounts, shipping, refund policies, subscription structures, and cancellation UX. The practices most likely to attract scrutiny include: overstating discounts or coupon value relative to the actual amount charged at checkout; obscuring auto-renewal or subscription conversion terms, or making cancellation buttons difficult to find; and failing to clearly display shipping costs, additional fees, or return conditions before the final payment step. Under the revised penalty framework, a single repeat violation can now trigger a surcharge of up to 50% on top of the base penalty, and four or more repeat violations can result in a surcharge of up to 100% — with administrative fines also being raised across the board. For startups, e-commerce operators, and platform businesses, this means UI/UX design decisions — not just contract language — now need to be reviewed through the lens of the E-Commerce Act and consumer protection law. 3. C2C Platform Liability: The Limits of Intermediary Immunity The amended E-Commerce Act and its follow-on enforcement decree now impose affirmative obligations on C2C (consumer-to-consumer) platforms as registered e-commerce intermediaries — regardless of whether they are direct sellers. Under the proposed rules, the range of personal information platforms must verify for individual sellers is being narrowed: the existing five-item requirement (name, date of birth, address, phone number, email address) is being reduced to two (phone number and email address). However, obligations to preserve and provide transaction records and to cooperate in consumer dispute resolution are being strengthened. The defense that "we bear no responsibility because we are merely an intermediary" is becoming increasingly untenable. What will determine the scope of a platform's legal liability is how it has structured its terms of service liability limitations, its dispute resolution and reporting processes, and its criteria for sanctioning or removing sellers. What Should You Be Reviewing Now? These amendments are not an abstract legal development — they directly affect platform architecture (marketplace, C2C, cross-border), review and ranking logic, and the design of pricing, subscription, and cancellation flows. Decent Law Firm's Corporate Practice provides integrated legal support through our E-Commerce Law, Platform Advisory, and Consumer Protection Law practices — covering full review and revision of terms and operational policies, legal guidance on UI/UX design to eliminate dark pattern exposure, and the design of documentation structures to withstand regulatory scrutiny and disputes. If you need to assess whether your platform's review policies or payment structures are compliant with the amended framework, contact Decent Law Firm today.'
2026-03-27 Naver Blog -
Blogs Corporate & Biz
Startup Incorporation in Korea - It Doesn’t End with Registration
Incorporating a startup is not just a matter of filing paperwork. It is a strategic process of designing your equity structure, voting rights, and shareholder relationships. The way you structure your company at the beginning will directly impact future investment opportunities, control over management, and the risk of disputes. Why Start as a Corporation from Day One In Korea, more startups are choosing to incorporate from the outset rather than starting as sole proprietorships. This is because, under a sole proprietorship, the founder bears unlimited personal liability, and risks grow rapidly as the business scales. In addition, most investment programs, government grants, and certifications are designed specifically for incorporated entities. The Most Common Risk: 50:50 Equity Split One of the most frequent mistakes among co-founders is a 50:50 equity split. While it may seem fair at first, it often leads to deadlocks in critical decisions such as appointing a CEO, approving investments, or entering into major contracts. Another issue arises when founders’ contributions change over time, but ownership remains fixed—often leading to conflict and, in many cases, legal disputes. To mitigate these risks, equity should be structured based on roles and contributions, and paired with vesting mechanisms tied to actual participation. Articles of Incorporation Are Not Enough- Why a Shareholders’ Agreement Is Essential If the articles of incorporation serve as the company’s constitution, a shareholders’ agreement functions as a detailed private arrangement among founders. Key matters that should be addressed separately include: Share buyback mechanisms (e.g., call options) Voting rights and decision-making structures Risk management when a founder exits Non-compete obligations and IP protection Without these provisions, resolving disputes later can become significantly more difficult. Structuring for Investment and Government Programs From the incorporation stage, startups should prepare for future investment and growth. Investment readiness → Establishing board structure and preferred share frameworks Government support and certifications → Designing capital and governance structures aligned with venture certification or special programs Early-stage structuring can have a decisive impact on both investment terms and founder control. How Decent Approaches Startup Incorporation Decent Law Firm does not simply handle registration. We act as a strategic partner in designing your startup’s legal and governance framework. Equity structuring for co-founders Integrated design of articles of incorporation and shareholders’ agreements Stock option and investment structure planning Structuring with future investment, exit, and global expansion in mind Incorporation Is Just the Beginning The way you design equity and shareholder relationships will define your company’s future and control structure. If you are currently deciding how to allocate equity among co-founders, or need to review your structure before incorporation, We invite you to consult with Decent’s Corporate Practice Team.
2026-03-24 Naver Blog -
Blogs Corporate & Biz
Must-Read if You Want to Avoid Penalties and Administrative Surcharges for Violations of the Fair Trade Act
Why Do We Become Parties to Violations of the Fair Trade Act? Most violations of the Fair Trade Act begin with transactional structures that have been repeated as customary practice. Conditions that have continued for years without question often come to light unchanged during investigations. Many companies assume that the mere existence of contractual provisions shields them from legal liability. However, the Fair Trade Act assesses illegality based not on the formal agreement of the contract, but on the substantive nature of the transaction and the imbalance of bargaining power between the parties. In particular, where the counterparty is in a position of economic dependence and cannot realistically refuse the terms, the conduct may be deemed unlawful regardless of the business operator’s subjective intent. In such cases, the corporation itself and the representative who holds actual decision-making authority may ultimately become the responsible parties under the Fair Trade Act. Key Transaction Structures Targeted by the Korea Fair Trade Commission Under the Fair Trade Act, abuse of superior bargaining position may arise where a business operator is recognized as having a superior position in trade vis-à-vis the counterparty (Article 45(1)(6) of the Monopoly Regulation and Fair Trade Act). If direct or indirect control over pricing, transaction terms, or business operations exists, the situation has already entered a risk zone. Using a superior bargaining position to impose unfair disadvantages on a counterparty—such as by threatening contract termination or suspension of transactions—may be regulated as abuse of superior bargaining position. In particular, discrepancies between internal standards or manuals and actual operational practices themselves can serve as grounds for determining a violation of the Fair Trade Act. Accordingly, the Korea Fair Trade Commission evaluates not only formal documents such as contracts, but also actual trading practices and operational realities in a comprehensive manner. Structures that appeared to be mutually agreed upon on the surface are often interpreted as unilateral control during the course of an investigation. From This Stage, Investigation and Sanction Risks Become Real Fair Trade Act cases may begin through complaints filed by counterparties or through ex officio investigations initiated by the Korea Fair Trade Commission. Once a complaint is received or an ex officio investigation is launched, the Commission may examine transaction records and related materials concerning the alleged violation. For this reason, the response strategy at the initial stage is a decisive factor in determining the outcome. Inaccurate explanations during document submissions, poor internal document management, or inconsistent statements can become fatal grounds for adverse findings. If the degree of violation is not minor, corrective measures and administrative surcharges may be imposed. Where the violation is objectively clear and serious enough to substantially harm the competitive order, criminal referral may follow. When criminal punishment is imposed for violations of the Fair Trade Act, the dual liability provisions may apply, resulting in penalties not only for the corporation but also for its representative officers. This is therefore a matter that must never be taken lightly. How Decent Law Firm Provides Assistance Decent Law Firm works in collaboration with corporate law specialists to practically assess and respond to fair trade risks arising in the course of corporate operations. Rather than limiting our review to formal contractual terms, we focus on actual transaction structures and operational realities, providing assistance in the following ways: Preemptive risk assessments of transaction structures, contracts, and operational practices Clarification of criteria for potential Fair Trade Act violations and advisory on structural improvements Development of response and substantiation strategies for KFTC investigations Practical, industry- and company-size–specific compliance support Fair Trade Act penalties are an area where it is already too late to begin considering solutions after issues have arisen. Assessing whether current transaction practices may fall within the scope of regulation is, in itself, the most realistic and effective form of response.
2026-01-08 Naver Blog
