A client, a minority shareholder in a foreign-capital invested company in Korea is involved in litigation with other company shareholders over issues the client had with the majority and other shareholders.
The majority shareholder (controls the representative director) has been helping himself to the company profits through liberal expensing and interested transactions with the company and his personal company. The majority shareholder is also threatening to block distributions and is possibly increasing the stickiness of his fingers.
Like situations WILL occur in many cases where a JV is not completed through a carefully drafted shareholder agreement and articles of association. A majority shareholding will not prevent this situation from occurring, because of the nature and power of representative directors.
I have said this numerous times, if you don’t want to support my extravagant lifestyle (actually I don’t have an extravagant lifestyle), get an experienced attorney to draft your Korean shareholder agreement and articles of association. Make sure the attorney knows what the heck he is doing- many of the foreign and Korean attorneys – don’t.
Make sure the attorney is not merely going to give you form agreements. Every joint venture agreement in Korea is different and form agreements are a sign of a lack of care and trouble in the future. Don’t skimp at this stage and thus don’t use form articles, form shareholder agreements, and form by-laws drafted by hacks, attorneys that quote the lowest price and only accountants and bubmusa (judicial scriveners).
Joint Venture Basics
- Due Diligence, Due Diligence, Due Diligence;
- Limit the Powers of the Representative Director;
- Retain the Power to Appoint and Remove the Representative Director;
- Maintain Control over the Company Seal;
- Retain Majority Control or include other Minority Protection Clauses; and
- Hire an Independent Accountant and Utilize a Neutral REAL Statutory Auditor.
A few other articles I wrote may be also of interest:
- Listen to your Mother (Minority Shareholder Rights in Korea)
- Korean’s Appetite for Inept Attorneys
- Protect Yourself from Bad Lawyers
- Korean Company Law
- So you Want to Start a Partnership/Joint Venture in Korea?
- Korea Due Diligence for Joint Ventures, Licensing, OEMs and Buying a Korean Company
- Entering into a Joint Venture/Partnership in South Korea?
- So you want to do business in Korea? Listen to my Mother. Korean Joint Venture/Partnership Basics
- Minority Squeeze-outs in Companies in Korea
- Korean M & A Due Diligence Checklist: Mergers & Acquisitions Due Diligence in Korea
- Statutes & Regulations Governing Business Combinations in Korea: Korean Mergers & Acquisitions Basics
- Starting a Manufacturing Business in South Korea: Top 14 Things to Know Before you Start a Business in Korea
- Distribution Agreement in Korea: Factors to Always Keep in Mind
- Merger/Acquisition Opportunities in Korea: Lotte Korea Buys KT Car Rental from KT Corp.