This article was published on July 28, 2025, at 5:42 p.m. on the ChosunBiz MoneyMove site.
A court ruling recognizing joint liability of hundreds of millions of won against a founder of a closed startup has stirred the venture investment industry. The government has been gradually abolishing the joint liability practice to reduce the burden on founders, yet a structure holding civil liability based on past contracts has been operational.
According to People Power Party lawmaker Kang Seung-kyu on the 28th, the Seoul Central District Court (46th Civil Division) ruled on the 16th that Hae Jin-woo, CEO of UrbanBase, must return approximately 1.25 billion won to Shinhan Capital, who filed a lawsuit for stock purchase price.
This is the first-instance ruling from a lawsuit filed in April last year by Shinhan Capital to Hae, demanding repayment of a 500 million won investment in UrbanBase with a 15% annual compound interest. The court also ordered repayment of the principal investment of 500 million won with calculated money at an annual rate of 25% from January 1 of last year until the full repayment date.
The lawsuit stemmed from an investment contract in which Shinhan Capital invested 500 million won in UrbanBase in the form of redeemable convertible preferred shares in November 2017. The contract included a clause allowing the company or founder to demand the purchase of their equity in the event of liquidation, bankruptcy, or recovery.
UrbanBase is a spatial data analysis company that started in 2014 but faced management deterioration due to the real estate market slump and failure to secure additional investment, leading to the initiation of corporate rehabilitation procedures early last year. Following the contract, Shinhan Capital sought stock purchase price and, when the company failed to comply, proceeded with legal action against the founder.
Hae argued, "Despite operating the company legally while complying with regulations and procedures, it is unreasonable to demand the full investment amount and high interest at an annual compound 15% rate solely because of the ultimate failure." However, the court did not accept this.
The court based its judgment on literary interpretation. In the actual judgment, the court stated, "The stock purchase right clause specifies that it applies in the case of dissolution, liquidation, bankruptcy, recovery, or a procedure equivalent to this (such as workout) concerning C," and added, "It cannot be said to require intent or negligence."
The revelation that a structure holds individuals personally liable for startup failures has sent considerable shockwaves throughout the venture investment industry. The government has been establishing regulations to ensure that founders do not bear joint liability in an effort to revitalize the startup ecosystem.
In fact, the Ministry of SMEs and Startups introduced a rule in 2018 that prohibits the requirement of joint liability for funds invested by the parent fund. Subsequently, in 2023, it revised the regulations for the registration and management of venture investment associations to prohibit joint liability for venture investment companies and associations, even extending this to accelerators (AC) this year.
However, it has been pointed out that embers left by past contracts still hold founders back in the venture investment field. The notifications do not retroactively apply, and since companies like Shinhan Capital, which fall under the jurisdiction of the Financial Services Commission, can avoid the application of venture investment regulations, the issue persists.
Furthermore, it has been reported that the civil rights exercises between the parties to the contract cannot be legally blocked. The court actually stated, "The purchase price demanded by Shinhan Capital, calculated at an annual compound interest rate of 15%, may seem high, but this clause is a contract entered voluntarily and does not contravene social order."
Experts point out that urgent legal amendments are needed for the effective prohibition of joint liability. A lawyer specializing in startup lawsuits noted, "Administrative guidelines alone cannot restrict the effect of civil contracts," and emphasized, "To prevent excessive joint liability following startup failures, legislative action must follow."
Concerns about the spread of lawsuits within the startup industry are also rising. Since the amendment of the parent fund regulations in 2018, the number of investment firms imposing joint liability has decreased starting from 2019, and joint liability can no longer be imposed unless there are illegal activities such as embezzlement or breach of trust, yet previous contracts may still hold validity.
For instance, many venture capitalists (VCs) who invested in UrbanBase around the same time as Shinhan Capital can demand to purchase all or some of the equity held by the investors, and it has been confirmed that the contract includes provisions stating that UrbanBase or the founding representative must make this purchase.
In particular, Capstone Partners, which invested in UrbanBase through ‘2015 KIF-Capstone K-Global IoT Early Investment Fund’ and ‘Meta Venture Asset Liquidation No. 1 Private Equity Limited Partnership’, has been reported to have investment contract terms that are nearly identical to those of Shinhan Capital. SL Investment also included joint liability provisions in its investment contract.
However, the likelihood of VCs filing lawsuits is said to be low. This is because a prevailing sentiment is emerging that it is more important to encourage re-challenges rather than punishing founders for their failures, even regarding civil rights.
A person in the VC industry stated, "Startups are inherently high-risk industries, and the government has taken this into account by expanding the ban on joint liability," adding, "Even if past contracts are legally valid, if lawsuits like this continue, the adverse effects on the startup ecosystem will be greater."
In this regard, Hae has decided to appeal. On this day, Hae stated on his social network service (SNS), "I will not give up," adding, "AI founders, who are already scarce, will not start businesses in Korea, and this will make the future of our country even darker."
Meanwhile, it is not the case that there are no founders supporting Shinhan Capital. A representative of a startup said, "Unlike in the past, startups now seek legal advice before entering contracts," and added, "In the worst-case scenario, those who know they must buy back the shares tend to naively accept the money, believing that such situations would not happen. Now, with many options available compared to the past, it would be wise to accept money from places without such terms."