Korea Bans Unfair VC Deal Terms, but the Refixing Limit Is Still a Blank

Four Banned Terms, and Only the Offending Clause Falls Away

Korea's Ministry of SMEs and Startups said on September 22 that the cabinet had approved an amendment to the Act on the Promotion of Venture Investment. The law will be promulgated on September 29 and takes effect on March 30, 2027. Lawmaker Lee Jae-kwan and 12 co-sponsors introduced the bill on December 22, 2025, and the National Assembly passed an amended version on September 3. It does two things. One bars major shareholders of venture capital firms from giving or taking money or entertainment to sway investment decisions or fund management. The part that reaches founders is a new Article 52-2.

That article lists terms the general partner of a venture investment fund may not put into a contract with a company the fund plans to invest in. It bans a clause that forces early repayment because business performance indicators moved, when there is no legitimate reason. It bans a clause that forces early repayment without the grace period a presidential decree will set. The third item targets what Korean investors call refixing: resetting the share price fixed in the original investment contract, beyond a range set by decree, because the company did not list on a stock exchange. A National Assembly review report describes refixing as a mechanism that adjusts the conversion price of redeemable convertible preferred shares and similar securities when the company's value falls or a later round comes in cheaper, limiting the investor's dilution. The fourth item is a catch-all for comparably unfair terms, again to be defined by decree.

If a banned term makes it into a contract, only that clause is void. The investment and the rest of the agreement stand. The original bill voided fourth-category terms only when they were markedly unfair to the company, and the standing committee dropped that qualifier so that all four categories are treated the same way.

The Grace Period and the Repricing Range Are Left Blank

The statute does not say where the lines are. The length of the grace period and the permitted size of a price reset will both come from a presidential decree. The ministry says it will prepare the subordinate rules before the law takes effect, and its announcement contains no numbers.

A reference point already exists. According to the review report the Assembly's industry and SME committee published in March 2026, these unfair-contract standards were first written into the rules of the Korea Fund of Funds. The report quotes the fund's notice for its first regular 2026 sub-fund selection, dated January 23, which lists six practices as unfair. One is calling back an investment before maturity without giving at least two months' notice to prepare repayment, unless the company agrees to waive it. Another is adjusting the share price set in the original contract by 30% or more because the company failed to list on a domestic exchange.

The penalty under those rules was exclusion from the Fund of Funds' selection of sub-funds, and the report notes that the sanction applied only to the Fund of Funds. Funds without its money were outside it. The first three categories of the amended law overlap with three of those six items: early calls tied to performance, the repayment notice period, and repricing after a failed listing. The law now covers every registered venture investment fund. Whether the remaining items end up in the decree depends on how the government fills in the fourth category.

From a Prison Term to Deregistration

As introduced, the bill would have punished a general partner who set unfair terms with up to five years in prison or a fine of up to 50 million won, the same penalty as for major-shareholder misconduct. The committee's review report questioned whether signing an unfair contract should be treated on a par with a major shareholder's illegal acts. The ministry argued for administrative sanctions instead, citing consistency with similar provisions, precedent in other contract laws, and the risk of making it harder for startups to raise money.

On May 20 the committee amended the bill along those lines. It deleted the criminal penalty and added unfair contract terms as grounds for action against the registrations of startup accelerators, venture capital companies and venture investment funds. The minister can cancel a registration, suspend business for up to six months, order corrections, issue a warning, or cut off support under the act for up to three years. Officials also gain the power to enter a fund manager's office and inspect books and records when they need to check whether an unfair term was set. The Legislation and Judiciary Committee passed the bill with wording changes on August 26, after its review report recommended defining "stock exchange market" by reference to the Capital Markets Act.

Rounds Signing Now Sit Outside the New Rule

Article 2 of the addenda applies the new section only to contracts first signed after the law takes effect. Agreements already signed are not covered, and neither is anything signed between promulgation and March 29, 2027. A founder negotiating a round today cannot point to the article to strike a clause. The government's guidance for that interval is the revised standard investment agreement and commentary it distributed on June 30.

The article also names a narrow set of obligors: the general partner of a venture investment fund contracting with a company that fund is investing in. The same firm investing from its own balance sheet, or through a fund set up under a different law, is not mentioned in the text. When a term sheet arrives, knowing which vehicle the money comes from decides whether this article will be available once it is in force.

The numbers will first appear when the draft decree is published for comment. How far they move from the Fund of Funds' two months and 30% is the next thing to check.