Common Stock Investment and Shareholders Agreements in South Korea
Shareholders Agreements in South Korea
Contents
- 1. When do you invest in common stock?
- 2. How does it differ from preferred stock?
- 3. How does the Shareholders Agreement supplement protection?
- 4. What are the key clauses of the common stock Investment Agreement?
- 5. What should founders and investors each watch?
- Download the common stock contracts
- Frequently Asked Questions
A common stock investment is the simplest in structure among venture deals — which makes understanding “what is absent” all the more important.
Because there is no preferred dividend, redemption, or conversion right, the investor holds the same class of shares as the founder. As a result, the contractual investor protections concentrate in the Shareholders Agreement (SHA). This article covers when common stock investments are used, how they differ from preferred stock, and how the SHA supplements protection, with the 2026 revised KVCA standard forms available below.
1. When do you invest in common stock?
Common stock investments are chosen when a simple structure is desired — early angel investments, small strategic or partner investments, or where the complexity of a preferred-stock design is best avoided.
Because common stock is the same class the founder holds, the rights relationships are simple and the burden on later-round design is light. The trade-off is that the investor accepts weaker downside protection with no preference.
2. How does it differ from preferred stock?
The biggest difference is the presence or absence of preference. Convertible and redeemable convertible preferred stock rank ahead in dividends and liquidation and carry redemption/conversion rights; common stock has none of these.
| Category | Common stock | Preferred (CPS/RCPS) |
|---|---|---|
| Dividend/liquidation preference | None | Yes |
| Redemption/conversion right | None | Yes (conversion/redemption) |
| Structural complexity | Simple | Relatively complex |
| Investor protection | Relies on the Shareholders Agreement | The shares themselves + the SHA |
3. How does the Shareholders Agreement supplement protection?
In a common stock investment, the center of gravity for investor protection shifts to the Shareholders Agreement (SHA). Because the shares carry no preference, the contract provides protections such as:
- Prior consent rights — consent over key decisions such as new share issuance, charter amendments, and disposal of major assets.
- First refusal and tag-along — protection on a founder’s sale of shares.
- Drag-along — the right to require a joint sale at exit.
- Representations and warranties, information rights — assurances about the company’s condition and periodic reporting.
4. What are the key clauses of the common stock Investment Agreement?
The common stock Investment Agreement (SPA) is relatively simple because it has no preference-related clauses. It centers on share issuance (number, price, payment date), conditions precedent, the company’s and interested party’s representations and warranties, and liability for breach.
Simple structure does not mean review is unnecessary. In particular, the scope of representations and warranties and the interested party’s (founder’s) liability remain live issues even in a common stock deal, so review carefully.
5. What should founders and investors each watch?
Founders should not be lulled by the simple structure; check the scope of prior consent rights and the joint-and-several liability clause in the SHA. Even with common stock, these clauses directly affect management and personal liability.
Investors, lacking any preference, should verify that the SHA’s protections are designed to actually work at exit. Atlas Legal reviews both the SPA and SHA together in common stock deals and organizes each side’s risks clause by clause.
These files are the standard contract forms distributed by the Korea Venture Capital Association (KVCA), revised April 2026. The documents are in Korean. Actual transactions require review and tailoring to the specifics of each deal; these materials are provided as reference forms and do not constitute legal advice on any particular matter.
Frequently Asked Questions
Q. When is a common stock investment appropriate?
A. It suits early angel investments, small strategic investments, or cases where the complexity of a preferred-stock design is best avoided. Its simple rights relationships lighten the burden on later-round design.
Q. Does a common stock investor have no protection at all?
A. The shares themselves carry no preferred dividend, redemption, or conversion right. Instead, protection is supplemented through the Shareholders Agreement’s consent rights, first refusal, drag-along, and similar clauses.
Q. Is a shareholders agreement needed for a common stock investment?
A. Yes. In fact, because investor protection centers on the shareholders agreement in a common stock deal, it is all the more important. Both the investment agreement and the shareholders agreement are provided below.
Q. Does the common stock investment agreement need less review?
A. The structure is simple, but core issues such as the scope of representations and warranties and the interested party’s (founder’s) liability remain, so review is still needed.
Q. What contracts does a common stock investment require?
A. Under the 2026 split structure, a Common Stock Investment Agreement (SPA) and a Shareholders Agreement (SHA) are used together. You can download both forms below.
To consult Atlas Legal on reviewing or negotiating a common stock investment contract in South Korea, please contact us at +82-32-864-8300 or info@atlaw.kr.
