National Audit Fuels Urbanbase Ruling Controversy, Urges Startup Investment Contract Review

National Assembly member Kim Han-gyu urged the government to actively intervene in the frequent issue of founders' personal joint liability in startup investment contracts. Representative Kim cited the case of the architectural platform Urbanbase, which filed for rehabilitation due to worsening business conditions, emphasizing the unfairness of the first-instance court ruling that ordered the founder to personally compensate a total of 1.2 billion won, including the principal investment of 500 million won and 700 million won in annual interest at 15%. This ruling is based on a put option clause stipulated in the 2017 investment contract, which allowed investors to request the CEO to purchase shares upon the commencement of rehabilitation proceedings. According to Representative Kim's investigation, one out of three startup founders was asked for a personal joint liability clause in investment contracts, suggesting that this is a de facto standard practice in the industry. He pointed out that such contractual clauses could potentially violate commercial law regulations regarding redeemable shares, which can only be repaid when the company has profits, and that imposing 15% compound interest along with personal joint liability on founders is entirely unfair. Recently, there has been an increasing trend of investors filing lawsuits against founders of failed companies, and Minister Han Seong-sook of the Ministry of SMEs and Startups also agreed with this trend. The complexity of this issue also lies in jurisdiction. Shinhan Capital, which invested in Urbanbase, is classified as a new technology startup company (신기사, shingisa) under the jurisdiction of the Financial Services Commission, whereas general venture capital firms are under the jurisdiction of the Ministry of SMEs and Startups. Representative Kim criticized the Ministry of SMEs and Startups for aggregating shingisa's performance when announcing venture investment results, even though half of domestic venture investments are made through shingisa, yet citing jurisdiction issues when it comes to regulation. Minister Han Seong-sook stated that the Ministry of SMEs and Startups already prohibits the imposition of third-party joint liability in venture capital-related investments and is currently consulting with the Financial Services Commission regarding the shingisa issue. She also added that the ministry plans to announce regulations related to individual associations and business planners within the year. Representative Kim emphasized, "The President said he would help young founders rise again even if they fail, but precedents like the Urbanbase ruling hinder young founders' second chances," urging the Ministry of SMEs and Startups, which oversees the startup ecosystem, to actively intervene in these issues. Currently, the Urbanbase case is in its appeals process, with the first hearing date for the second trial scheduled for the 20th of next month, anticipating a significant legal dispute over the validity of the put option clause and the scope of the founder's personal liability.