Investment at the Incorporation Stage, Key Considerations in Drafting a Shareholders’ Agreement

Client Information

Corporate / Contracting Party
 

Case Details

The client was a prospective founder preparing to establish a new company and secured a total investment of KRW 100 million from a personal acquaintance.

While welcoming the investment, the client was concerned that the investor might later interfere excessively in management matters or slow down decision-making simply by virtue of being a shareholder.

To address these concerns, Decent Law Firm’s Corporate Advisory Team was engaged to advise on the drafting of a Shareholders’ Agreement and a Share Subscription Agreement, with a focus on protecting management control and preventing future disputes.

1. Exclusion of Investor from Management Authority
The agreement clearly stipulated that the investor would not be deemed an officer or co-manager of the company solely by entering into the investment agreement. The investor was expressly denied any approval or veto rights over key operational matters, including fund execution, personnel decisions, and marketing activities.

2. Staggered Capital Contribution and Conditional Rights
The total investment amount of KRW 100 million was structured to be paid in two installments. If any portion was not paid, no corresponding shareholder rights would arise, and the agreement could be terminated, thereby mitigating financial and governance risks.

3. Liability Shield for the Representative Director
While the investor bore no responsibility for the company’s operational outcomes, the agreement also prevented the investor from holding the CEO liable for results arising from unreflected opinions or delayed responses from the investor.

4. CEO-Led Exit Structure
A drag-along right was granted to allow the CEO to lead a share sale in the event of an exit following an increase in company valuation. The investor’s tag-along right was expressly excluded to preserve management-led exit control.

5. Enhanced Confidentiality Protection
All non-public information of the company, including financial data and client lists, was defined as confidential information. Any breach would trigger a contractual penalty of KRW 100 million, regardless of actual damages, ensuring long-term protection of sensitive information.