Stock Purchase/M & A Due Diligence Check List for Korean Companies

A client called and asked if I would draft a due diligence check list in order to advise on due diligence necessaries.  The client intends to purchase the stocks of a distressed 700+ employee Korean company.

He noted that his staff would do the actual due diligence and all we should do is prepare the check list. I sent him this list for free and advised him to get someone to do the due diligence that knows what to look for. Hopefully, he will take my advice, since we see too many issues with clients looking to save a few bucks by using staff with no Korean experience.

Korean companies often are very poor at keeping accurate records, thus, knowing what and where to find the usual red flags is critically necessary. The paper trail that is produced by Korean companies is often poor and without a knowing eye and ear you are bound to be taken to the cleaners. Additionally, the issues that come up in U.S. due diligence are vastly different than those that arise in Korea.

Be forewarned, this list was meant for experienced attorneys with knowledge of numerous Korean peculiarities. The list is only our initial check list and intended to jar the memory only.

I. History
     A. Company History
     B. Founder & Family
     C. Historical Profitability
     D. Reason for Sale
     E. Primary Customer
     F. Stinky Fish

II. Financials
     A. Audit Documents
     B. Tax Returns, VAT filings etc.
     C. Government Filings, Notices and Communications
     D. Local Taxes
     E. Cash Flow, Current Financials, YE
     F. Distribution to shareholders

III. Company Docs
     A. Business Licenses
     B. Articles, By-laws, Amendments etc.
     C. Shareholder Agreements
     D. Government Approvals etc.
     E. Directors, Officers, Share Holdings
     F. Representative Director, Seal Authority
     G. Formation Docs
     H. Insurance

IV. Assets
     A. Receivables
     B. Real Property
     C. Moveable
     D. IP (trademark, patents, copyrights, licenses etc.)

V. Other Liabilities
     A. Lawsuits
     B. Government
     C. Loans
     D. Guarantees
     E. Licenses
     F. Contingents
     G. Liabilities to Shareholders, Directors, employees

VI. Employees
     A. Employee List
     B. Employment Contracts
     C. Government Obligations
     D. Severance Obligations
     E. Employment Related Tax Obligations
     F. Labor Union Representatives/Union

VII. Real Estate
     A. Title, Lease, Property Records
     B. Adjoining Landowners
     C. Mortgages, Liens etc.

VIII. Customers
     A. Major Customers
     B. Agreements
     C. Customer Relationship Issues
     D. Customer Relationship with Key Employees Leaving


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