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The Availability of Smart Contracts in M&A Transactions

KIM, Beom Joon 1,  Lee Chae Yul 2

1단국대학교
2BK21+ 특화인재전문양성인력사업

Accredited

ABSTRACT

Korea is one of the countries with low number of M&A transactions compared to major foreign countries, and large companies have consistently participated in the M&A market through mergers and cross-boarding M&As, but small and medium enterprises have been excluded from the M&A market in Korea and abroad. The reason for such sluggish M&A transactions among small and medium-sized companies is that, first of all, they lack information skills and expertise relative to their larger counterparts. Second, the M&A process is time-consuming and costly. In fact, in the case of friendly takeover, it takes at least six months to complete detailed agreements and up to a year. Therefore, participating in M&A deals at the expense of such a long time poses a great risk for small businesses. Smart contracts can be used as one of the solutions to this sluggish Korea M&A market and the problem of small and medium-sized companies entering cross-board M&A market. A smart contract is a program run within the second-generation blockchain Ethereum blockchain that creates a specific contract code and is signed directly by the parties without a middleman. Smart contracts have high transparency and reliability because they are made within the decentralized ledger. As implementation occurs upon conclusion of the contract, time and the resulting costs will also be reduced. Therefore, the use of such smart contracts in M&A deals could break down entry barriers in the Korea M&A market. This naturally helps the nation's economy a lot. However, the use of such smart contracts in M&A transactions will require the readjustment of relevant laws and regulatory regimes. Currently, Korea has no institutional foundation for smart contracts, unlike that of major foreign countries that already drew up related legislation two to three years ago. Therefore, new technologies that emerged with the advent of the fourth industrial revolution are not being utilized in the regulatory framework. Based on this, this paper discussed ways to improve the legal system related to blockchain and smart contracts in Korea and to utilize them in M&A deals, as well as various legal issues that may arise. Also, this paper identified the trend of blockchain and smart contracts legislation already in place in major foreign countries and analyzed actual use cases in M&A transactions in particular. In this regard, Korea should utilize smart contracts in M&A deals to help boost the local and corss-border M&A market and use them as a way to boost the Korea's economic growth.

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