I just received a phone call from a prospective client with a wonderful product that has been offered a sweetheart deal. Whenever I hear that someone has received a no risk or sweetheart deal in Korea, a red flag immediately goes up in my head and I immediately request the client to let me do a couple of weeks of due diligence.
The, ubiquitous, sweetheart deal is ownership of shares in company in exchange for some benefit from the foreign partner. Too often, the Korean company is a shell. The shell is broke with liabilities that far exceed assets. The shell, however, is paying his management handsomely through a variety of interested transactions and access to the expense account. In one case I regrettably saw, the company was under investigation of the prosecution.
Thus, your sweetheart deal may lead to unexpected liabilities, the deterioration of your brand image, the eyes of investigative bodies and additional legal fees and lost future opportunities.
Do yourself a favor, engage a professional to engage in a little due diligence. I wrote many articles about due diligence in Korea. A few are below.
- Korea Due Diligence: Not so Different from China
- The Top 10 Things to Do Before Manufacturing in Korea
- Korea Stock Purchase Checklist for SMEs
- Doing Business in Asia: Due Diligence, Agreements, Attorneys and Streetsmarts
- Listen to My Mother: JVs in Asia
- Korea Joint Ventures: The Bare Essentials
- Acquiring Shares in Closed Korean Corporation in Exchange for Product at Discount: Don’t Forget the Due Diligence in Korea
- Korea Contracts Don’t Forget the Counter-party: Due Diligence before Executing an Agreement in Korea
- Beware the Grey Market Trap in Korea: Due Diligence, Agreements and Street Smarts
- Korean M & A Due Diligence Checklist: Mergers & Acquisitions Due Diligence in Korea
- Korea Due Diligence for Joint Ventures, Licensing, OEMs and Buying a Korean Company
- Debt Collection Cases in Korea on the Rise: Buyers and Sellers Beware
- Contracts Necessary for Doing Business with a Korean Company?
- Starting a Manufacturing Business in South Korea: Top 14 Things to Know Before you Start a Business in Korea
- Korean Distribution Agreements: So you Want to Work with a Korean Distributor
- Statutes & Regulations Governing Business Combinations in Korea: Korean Mergers & Acquisitions Basics