Any business in Korea that are registered at a corporation must wind-up their company to legally close their business. Many companies, however, choose to forgo this step thinking that no repercussions will be felt. This belief is far from the reality. I know a pending case that has lead to prosecutions, a lawsuit of a related company and a tax audit of an individual shareholder.
The following is the procedure to close a company in Korea. Please note that this is not intended as an exhaustive explanation of the procedure.
First, execute a special resolution to dissolve the Korea-based company at a general shareholder meeting. The special resolution, in most cases, must be adopted with an affirmative vote of 2/3 of the shareholders present with 1/3 of the shareholders in attendance.
Then, unless the articles of incorporation of the Korean company notes a different procedure, the directors may act as the liquidators. However, in most cases it is more efficient to elect another liquidator at the aforementioned general shareholder meeting. If you are unable to find an adequate liquidator, the court will appoint one.
Within two weeks from the date of the aforementioned general shareholder meeting, the Korean company should register with the court a motion to dissolve the company. The company after filing is treated similarly to a company that is in U.S. Chapter 11 bankruptcy protection. The company must file the motion at the court that has jurisdiction over the locale of the primary place of business or registered address of the company.
The Korean court will, then, request the liquidator to file a brief to the court explaining the reason for the company dissolution. The liquidator will be required to consult and receive approval of the company shareholders prior to filing this brief. The brief will need to include, at a minimum, a list of assets, debts and a balance sheet. The liquidator will, also, commence the closing of accounts and the paying off of creditors. The liquidator should file the brief to the court within 14 days of his/her appointment as a liquidator. The liquidator should, also, publish in a daily newspaper two times a notice of dissolution within two months of his/her appointment as a liquidator. The notice should contain the contact details of the liquidator and request that all creditors contact the liquidator in order for the creditor to be placed on the list of creditors.
The liquidator, at least two months after the second publication, will, then, settle all debts with the creditors up to the ability of the company to settle the debts. If the liquidator is unable to settle the debts, the court will declare that the company bankrupt. The priority, settlement and bankruptcy procedures shall be addressed in a separate post. Upon completion of Step 5 the liquidator shall compile the closing report. The report should be approved by the shareholders. The liquidator should file the report to the Korean court within two weeks of obtaining approval.
The liquidator is, then, required to file documents to the National Tax Services. A separate post will detail these requirements.
This procedure is typically done with the assistance of a law firm. Please hire, only, an experienced law firm in Korea or you will produce more grey hair.
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Sean Hayes, IPG‘s Co-Chair of the Korea Practice Team, may be contacted at: SeanHayes@ipglegal.com
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