CONTENTS
- 1. The Client Who Requested Contract Review and Advisory
- - Detailed Background of the Case
- 2. Contract Review and the Assistance of the Corporate Advisory Attorney
- - Review of Contract Provisions and Risk Assessment
- - Revision of Provisions and Presentation of Alternatives
- - Negotiation Support and Procedural Advisory
- 3. Outcome of the Contract Review and Advisory
- 4. Contract Review: Points to Note in a Shareholders' Agreement
- - Key Provisions of a Shareholders' Agreement
- - If You Are in a Situation Requiring Advisory
1. The Client Who Requested Contract Review and Advisory
The client, who came to this firm for contract review and negotiation coordination, was pursuing equity participation by a foreign strategic investor to expand into the global market, and requested assistance in a situation where interests could come into conflict.
Detailed Background of the Case
The client was a company pursuing new funding, including from a foreign investor.
However, the draft shareholders' agreement presented during the investment process contained issues such as the risk of infringing existing shareholders' rights, the possibility of equity dilution, and an imbalance in the allocation of voting rights.
In particular, in a situation where the issuance of new shares and the sale of existing shares took place at the same time, there was a risk that, if the contract provisions were designed primarily around the investor's demands, the company's strategy and the interests of existing shareholders could be harmed.
Accordingly, the client determined that it was necessary, through review of the shareholders' agreement, to filter out unfavorable provisions and to reasonably adjust the rights and obligations of shareholders.
The client also requested the assistance of a corporate advisory attorney to legally analyze the contract terms proposed during negotiations among multiple stakeholders, and to renegotiate them in a direction favorable to the company.
2. Contract Review and the Assistance of the Corporate Advisory Attorney
The issues in this case were as follows.
ㆍ Dilution of existing shareholders' equity resulting from the issuance of new shares
ㆍ Investor-centered, unfavorable contract provisions
Taking the above issues into account, the corporate advisory attorney focused on carefully reviewing the contract provisions and presenting alternatives for adjusting the unfavorable terms.
Through this, the attorney provided assistance so that the negotiations with the investor proceeded smoothly while protecting the company's strategic interests.
Review of Contract Provisions and Risk Assessment
The corporate advisory attorney analyzed the draft shareholders' agreement presented by the foreign investor.
As a result of the review, provisions unfavorable to the company came to light, such as a structure concentrating voting rights, excessive equity dilution, and unbalanced option clauses.
The attorney systematically organized these potential risks by item, reported them to the client, and discussed the direction of the response.
Revision of Provisions and Presentation of Alternatives
The corporate advisory attorney did not stop at merely pointing out the problems, but prepared alternative provisions that could be revised, along with a negotiation strategy.
For example, the attorney proposed retaining the investor protection provisions while relaxing the conditions to strike a balance with the company's strategy.
The attorney also added supplementary provisions to safeguard shareholders' rights, thereby improving the contract structure to make it more stable.
Negotiation Support and Procedural Advisory
During the renegotiation process, the attorney supported the direction of the negotiations so that the client would not unreasonably accept unfavorable terms.
At the same time, the attorney reviewed essential internal procedures, such as the board resolution, the foreign investment report, and the tax review, to prevent legal defects.
Through this, the attorney provided assistance so that the contract conclusion process was legally stable and the balance among stakeholders was maintained.
3. Outcome of the Contract Review and Advisory
Through the corporate advisory attorney's contract review and coordination, the client company was able to meet the investor's demands while securely protecting the rights of existing shareholders.
In particular, as the voting rights structure and the shareholding ratio issues were reasonably adjusted, the investment negotiations proceeded without difficulty, and the attraction of new funding was successfully completed.
As a result, the company secured the trust of the foreign investor while maintaining management stability and balance among shareholders.
4. Contract Review: Points to Note in a Shareholders' Agreement
A shareholders' agreement is a document in which the shareholders of a company agree in advance on matters such as equity management, company operations, and methods of dispute resolution.
In the early stages of a startup, disputes are likely to arise because shareholding ratios and the division of roles are unclear, but concluding a shareholders' agreement makes it possible to establish a stable framework for operations.
Therefore, through contract review, it is essential to confirm whether there are any unfavorable provisions or any omitted parts.
Key Provisions of a Shareholders' Agreement
1. Shareholder Composition and Shareholding Ratios
This makes it possible to design the voting rights and management governance structure in a stable manner, and it serves as a basis for preventing future disputes.
2. Dispute Prevention Mechanisms
In addition, balancing the rights among shareholders through call options (the right to demand purchase) and put options (the right to demand sale) allows for flexible responses in situations of conflict.
3. Restrictions on the Transfer of Shares
Moreover, granting existing shareholders a right of first refusal can prevent situations in which management control is shaken by unexpected changes in shareholdings.
4. Tag-Along Rights
Through this, a fair distribution of profits becomes possible, and minority shareholders can also be protected in a stable manner.
5. Company Protection Provisions
In addition, a non-competition provision can prevent technology, customers, and trade secrets from being leaked externally.
If You Are in a Situation Requiring Advisory
A shareholders' agreement is not merely a formal document, but a key contract that determines a company's growth and the prevention of disputes.
In particular, contract review is essential at important junctures, such as the participation of a foreign investor, the attraction of new funding, and the grant of stock options to key talent.
Without a review, one may accept unfavorable terms or become entangled in a later dispute.
Through contract review, this firm reflects provisions suited to the company's strategy and supports the company in securing a stable governance structure over the long term.
In addition, in the case of complex investment structures and contracts involving foreign investors, the firm focuses on proactively blocking unfavorable provisions and designing a contract structure that aligns with the company's long-term strategy.
If you are in a situation where contract review and advisory are needed, 🔗Legal Consultation Booking, please request assistance through this service.
This content is based on actual case studies of Daeryun Law LLC with some adaptations, and the copyright belongs to our firm.
Unauthorized reproduction, duplication, or distribution and other copyright infringements may result in legal action under applicable laws.
