Starting a Business in South Korea

We wrote many posts on this Korean Law Blog on entering the Korean market.  However, the list is getting so large that many people have requested that we make a list of the posts that we feel are the most useful for those entering the Korean Market.  Thus, here we go.  More posts will be added to this list. Selling to Korea via Distributors, Agents & other Non-Direct Sales Channels Joint Venture/Partnerships in South Korea Test the Korean Waters and Then Hit China Protecting your Intellectual Property in Korea Korean Outsourcing: Legal Basics Tax Qualified Mergers in Korea Due Diligence in Korea New Corporate Forms in Korea Please, also, take a look at the labels to the right and, also, click through to the other articles noted within the articles above.  We are, presently, attempting to compile are blog posts into a more usable format, however, with over 700 posts

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Korean Distribution Agreements: So you Want to Work with a Korean Distributor

We have noted, on a number of occasions, that the drafting of a Korea-centric distribution agreement and a good deal of due diligence of the anticipated distributor/agent is necessary for avoiding the issues that will require our litigation services.  Some of the articles on Due Diligence matters may be found below: Doing Business in Asia: Due Diligence, Agreements, Attorneys and Street Smarts Listen to My Mother: JVs in Korea (Translated from Korean) Debt Collection Cases in Korea on the Rise: Due Diligence Brother I have been informed by one of my more frugal of clients that his company would appreciate a basic rundown of a decent distribution agreement (I know you will be drafting this on your own – don’t) – so here we go. The basic clauses we include in most of our Korean Distribution Agreements are as follows: Exclusivity:  Exclusive/Non-exclusive Territory & Products Term of Agreement Renewal/Termination Pricing &

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Weekly Korean Legal News From International Law Firm – IPG Legal for the Week of July 28, 2014

Weekly Korean Legal News From International Law Firm – IPG Legal for the Week of July 28, 2014Korean Legal News Reported by the Media on the Week of July 28, 2014 IMC may blacklist Korean builders over collusion Prosecutors continue probe into ferry owner’s driver Foreign workers upset by severance pay formula Restructuring urgent for big Korean companies Relocation of USFK Headquarters to Go Ahead Most Recent Posts from the Korean Law Blog This slot is reserved for the new article Korean Franchise Law Basics for Franchisors “Samsung’s First Family Struggles to Keep Grip on Company” Report by Bloomberg Debt Collection in Korea: Foreign Creditor vs. Bankrupt Korea Debtor Opportunities in Korea’s Growing Tuning & Performance Modification Industry for Foreign Companies ___ Sean Hayes may be contacted at: [email protected] Sean Hayes is co-chair of the Korea Practice Team at IPG Legal. He is the first non-Korean attorney to have worked

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Samsung Faces Challenges as It Tries to Win Smartphone Wars

CNBC released an interesting article on how the largest smartphone maker can win the smartphone war. The article pointed out that despite the recently lowered guidance, Samsung is likely to deliver strong results. The article also mentioned four points that Samsung needs to improve in order to retain its edge in the smartphone market. User interface – “In order to retain its lead over the long term, Samsung needs to build a platform that’s as compelling for app developers and users as Apple.” Customer service – “Good communication between users and the smartphone company is crucial to long term” success. The OS challenge – “Even if Samsung is able to differentiate itself through better customer service and improved user experience, it may face other challenges as it tries to build out Tizen, its first attempt at its own operating system.” Profit margin – “Profit is increasingly important as analysts see a plateauing of the

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Korean Franchise Law Basics for Franchisors

Over the next week couple of weeks we will be posting articles on the updated Korean Franchise Law.  The articles will be listed below.  The articles will address the major issues facing franchisors in the Korean market. If you have any topics that interest you or will interest other readers – please advise.  Articles on the Basics of Korean Franchise Law: Distribution Agreements in Korea: Crawl before you Walk Korean Small Business Partnerships/Joint Ventures: Pubs, Distributors, Exporters, Boutiques, Franchises and Basic Manufacturing etc. Dispute Resolution Clauses in Franchise, Joint Venture, Partnership Agreements in Korea Business Opportunities in Korea for Entertainment Companies Korean Franchise Law Basics: Korea’s Act on Fairness in Franchise Transactions ___Sean Hayes may be contacted at: [email protected] Sean Hayes is co-chair of the Korea Practice Team at IPG Legal. He is the first non-Korean attorney to have worked for the Korean court system (Constitutional Court of Korea) and

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Weekly Korean Legal News From International Law Firm – IPG Legal for the Week of July 21, 2014

Weekly Korean Legal News From International Law Firm – IPG Legal for the Week of July 21, 2014Korean Legal News Reported by the Media on the Week of July 21, 2014 South Korea Plans $40 Billion Stimulus to Tackle Weakening Growth Seoul to push tax on corporate cash reserves U.S. Chamber of Commerce chief urges FTA implemantation Workers in Their 60s Outnumber 20-Somethings Mortgage deregulation raises concerns Most Recent Posts from the Korean Law Blog Debt Collection in Korea: Foreign Creditor vs. Bankrupt Korea Debtor Opportunities in Korea’s Growing Tuning & Performance Modification Industry for Foreign Companies Korean Fugitives on the Run: Getting more Difficult with Change of Law Distribution Agreements in Korea: Crawl before you Walk Is Samsung Doomed? No Innovation Price Trap ___ Sean Hayes may be contacted at: [email protected] Sean Hayes is co-chair of the Korea Practice Team at IPG Legal. He is the first non-Korean attorney

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“Samsung’s First Family Struggles to Keep Grip on Company” Report by Bloomberg

The Samsung saga continues.  Lee Jae-Yong is likely to take over from his father soon.  It looks like Lee Kun-Hee’s health is not improving.  Bloomberg has an interesting article on this issue that may be found on the link below.   The Lee Family owns less than two percent of the total shares of Samsung Group, though they near absolutely control 74 companies “through a web of share holdings.” However, because of recently enacted regulations and tax laws, the family may lose its influences over the companies.  President Park has banned “new cross holdings.” Under current tax law in Korea, heirs have to pay inheritance taxes of 50 percent of the asset value which means that Lee Jae-Yong may have to pay about  $6 billion as inheritance taxes. While the Lees are planning to take two companies public in order to raise money to pay the inheritance taxes, Lee Jae-Yong has faced another challenge. According to

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Weekly Korean Legal News From International Law Firm – IPG Legal for the Week of July 14, 2014

Weekly Korean Legal News From International Law Firm – IPG Legal For the Week of July 14, 2014.Korean Legal News Reported by the Media on the Week of July 14, 2014 LG outpaces Samsung in UHD TV panel market in May: data Hana Bank set for merger with KEB Economists Doubt Korea Can Return to Solid Growth Line to Be Listed on Tokyo Stock Exchange Korea ranks third in e-trade readiness Most Recent Posts from the Korean Law Blog Opportunities in Korea’s Growing Tuning & Performance Modification Industry for Foreign Companies Korean Fugitives on the Run: Getting more Difficult with Change of Law Distribution Agreements in Korea: Crawl before you Walk Is Samsung Doomed? No Innovation Price Trap Foreign Account Tax Compliance Act (FACTA) in Korea ___Sean Hayes may be contacted at: [email protected] Sean Hayes is co-chair of the Korea Practice Team at IPG Legal. He is the first non-Korean

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Opportunities in Korea’s Growing Tuning & Performance Modification Industry for Foreign Companies

Korea has been behind its Asian neighbors in its love for modifying cars, partially, because of Korea draconian laws related to car modifications.  Police, regularly, impose fines on those that modify the look and performance of cars. The tuning industry in Korea is estimated to be around USD 500mil, while Japan tops in at over USD 14billion.  We suspect this will change soon. The good news for foreign aftermarket parts manufacturers, looking to enter the Korean market, is that the present administration has vowed to change laws to allow cosmetic and performance modifications to cars. We assume the changes to law (or application of law) will occur this year. A decent article on the issue may be found at: Legal Tune-up to Help Koreans Pimp Their Rides ___Sean Hayes may be contacted at: [email protected] Sean Hayes is co-chair of the Korea Practice Team at IPG Legal. He is the first

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Weekly Korean Legal News From International Law Firm – IPG Legal for the Week of July 7, 2014

Weekly Korean Legal News From International Law Firm – IPG Legal For the Week of July 7, 2014Korean Legal News Reported by the Media on the Week of July 7, 2014 Science Ministry to Introduce Laws for Better Mobile Service Plans Validity of Financial Holding Firms in Question Bank of Korea Hints at Rate Cut Pantech Sinking into Deeper Liquidity Crisis Samsung Chief Marks 2 Months in Hospital Most Recent Posts from the Korean Law Blog Is Samsung Doomed? No Innovation Price Trap Is Korea’s “Copy Culture” the Largest Threat to the U.S.? On Fox Business Korean Immigration Law’s 20% Rule Challenged Material Breach of Contracts Under Korean Law: Primary Obligations vs. Secondary Obligations Samsung’s Shareholdings Explained by Wall Street Journal ___ Sean Hayes may be contacted at: [email protected] Sean Hayes is co-chair of the Korea Practice Team at IPG Legal. He is the first non-Korean attorney to have worked

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Foreign Account Tax Compliance Act (FACTA) in Korea

From this month, the Korea Financial Services Commission will require banks to request all to disclose if they are U.S. nationals or U.S. permanent residents when opening a bank account in Korea. Most U.S. taxpayers residing abroad must report, under U.S. law, the details of all foreign financial accounts held and controlled by the taxpayer under FACTA and also Foreign Bank and Financial Accounts (FBAR). Get the picture?  The IRS is watching and now has more tools to watch. More information may be found at: Foreign Account Tax Compliance Act: IRS Website._____Sean Hayes may be contacted at: [email protected] Sean Hayes is co-chair of the Korea Practice Team at IPG Legal. He is the first non-Korean attorney to have worked for the Korean court system (Constitutional Court of Korea) and one of the first non-Koreans to be a regular member of a Korean law faculty. He is ranked, for Korea, as

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Korean Immigration Law’s 20% Rule Challenged

Increased direct foreign investment to Korea is, facially, Park Gun Hye’s Administration’s top priority. However, according to the Korea Herald, it seems like the Korean bureaucracy is not following the Park Administration. The Korea Herald reported that foreign companies have increased complainants about the current Korean immigration law as exemplified in at a government-organized forum in Seoul last week.   The complaints have come, in part, because “[u]nder Korean immigration regulations, companies are allowed to employ a workforce with up to 20 percent of their employees being foreign semi-professionals or skilled laborers on an E-7 visa.” Some participants argued that under the current regulations, foreign companies have to employee more local workers in order to increase their foreign workforce, which “adds to the financial pressure to many small and medium-sized foreign companies.” We see this and other issues with Immigration that we have seen, first hand, is causing many foreign

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Finding a Distributor or Agent to Sell/Market Your Products in the South Korean Market

Finding a quality distributor for your products is not an easy task in Korea.  We regrettably have dealt with numerous issues related to distributors not paying invoices, misrepresenting products, violating intellectual property rights and even selling fake products alongside the real imported products. The major reason for these occurrences is the client to quickly rushing into “opportunities” without vetting out a distributor and poorly drafted distributions agreements. Many distributors in Korea are fantastic, others are mere order processors and some are downright criminals.  It is not too difficult to avoid the latter two if you consider, at least, some of the following: 10 Ten Things to Consider Prior to Doing Business with a Distributor in Korea. Has the Korean distributor worked with other foreign companies? If not, you are, likely, dealing with a very inexperienced distributor.  Check, also, if the distributor was educated abroad.  We find that those with, only,

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Samsung Threatens Suit Over Reports of Chairman’s Condition

Irked by continuing reports of chairman Lee Kun-hee’s failing health, the Samsung Group has threatened legal action against media outlets carrying the stories fueling the speculation.  Commenting on this possibility, a Samsung spokesman stated that “we’ve repeatedly requested media with unsubstantiated reports for corrections. If they do not comply, we may file suit.” Rumors of the chairman’s health have been widespread since he suffered a heart attack earlier this month. One report this past week had the Samsung chairman dying on May 16th, explaining that Samsung was hiding the news in the meantime. The company has maintained that Lee is steadily recuperating. Chairman Lee is South Korea’s richest man.  He has been at the controls of the Korean conglomerate since 1987. The Power of Samsung in Korea: Ways to Protect Your Business from the Powers to Be in Korea Apple vs. Samsung: Koreans are Furious at China for Copying Samsung

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Verdict in latest Samsung/Apple Courtroom Battle

A U.S. Federal Court jury has resolved the latest legal dispute between Apple and Samsung, ruling that both companies wrongfully infringed some of the other’s patents while absolving each of liability in other patent infringement claims. Very notably, the jury awarded Apple $119.6 million in damages, much less than the $930 million awarded the two tech-giant’s earlier 2012 case, and nowhere near the $2.2 billion Apple had been seeking in this trial.  All of this, of course, is pending appeal. Commenced when Apple filed suit against Samsung in February of 2012, this suit saw Apple once again accusing Samsung of patent infringement, claims Samsung “systematically copied Apple’s innovative technology and products, features, and designs, and . . . deluged markets with infringing devices.” Samsung counterclaimed that Apple engaged in patent infringement of its own. A great article on the matter can be found at Vanity Fair: Apple’s Victory over Samsung

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Derivative/Shareholder Suits in Korea: Corporate Governance in Korea

Much like the United States, Korean law permits shareholders of a company to file a lawsuit against the company’s directors/third parties, on behalf of the company, when directors’/third parties’ wrongful acts result in losses or may later result in losses. In this type of legal action in Korea, known, often, as a derivative suit, the plaintiff-shareholders do not bring a claim as themselves as individuals, but as representatives of the corporation, the entity suffering the harm but which otherwise would be unable to raise a claim. In Korea, Article 403 of the Korean Commercial Code defines the statutory basis for derivative suits. The Code provides that a shareholder, holding at least 1/100 of the total issued and outstanding shares of a company, may sue a director on behalf of the company shareholders. With regard to listed companies, the code permits derivative suits when a shareholder has held not less than

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Guide to Establishing a Company in Korea: Branch vs. Office; FIPA vs. FETA

The establishment of a foreign enterprise in Korea is governed, inter alia, by the Foreign Investment Promotion Act and/or the Foreign Exchange Trade Act. Formation of a local corporation of a private business in Korea is governed by the Foreign Investment Promotion Act of Korea.  The establishment of a branch or office is governed by the Foreign Exchange Act of Korea.  A branch or office, in Korea, is considered a  domestic branch of a foreign corporation under Korea law. FOREIGN-CAPITAL INVESTED COMPANIES IN KOREA The Foreign Investment Promotion Act and the commercial law of Korea apply to investments that a foreign individual or a foreign corporation makes by establishing a corporation in Korea.  The corporation is considered a local corporation that was foreign-capital invested.  The foreigner or foreign company, in most cases, must  invest a minimum of KRW 100 million to avail of the benefits of the acts. The Foreign

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“Ordinary Wages” Under Korean Labor Law Clarified by the Supreme Court: “Regular, Uniform & Flat” Definition

The definition of “ordinary wage” has been clarified by the Korean Supreme Court in two decisions handed down on December 18, 2013.  The cases will have a significant impact on Korean Labor & Employment Law and will, likely, lead to additional litigation. The calculation for an Ordinary Wage is utilized to calculate statutory entitlements, thus, has an impact on the aggregate amount of contributions necessary to be paid to an employee.  The issue is one of the most significant issues, this year, for domestic and foreign employers. For example, under Article 56 of the Korean Labor Standards Act, an employer must pay 50% of the “ordinary wage” plus the ordinary wage for overtime, night and weekend work performed by the employee.  For many companies, this calculation could increase costs to a point that will make profitable companies head, immediately, to the red. The basic test has been that an Ordinary

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Can Koreans Perceive Foreigners as Part of the Tribe? by Senior Advisor Tom Coyner

Living abroad offers interesting and frustrating challenges. Having lived half my life in East Asia, I have long accepted that the trade-off in having an above-average existence comes with above-average potential irritations. That is, if one really gives a damn about what is happening, living in Asia can drive the well-intentioned expatriate up the wall. On the other hand, if one rationalizes what is happening in the immediate community is none of the foreigners’ business, life can be much simpler and more pleasant. A recent case in point came in the guise of an e-mail from an American friend who has lived in Korea for more than 40 years. Having lived here more than two-thirds of his life and being bilingual in Korean, he often seems more Korean than Western. But even before he arrived as a Peace Corps volunteer, he had developed a passion for older architecture. In time,

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Drinking Culture in Korea Explained by Tom Coyner

I’s funny how words can inform and mislead. When I first came to Korea in the mid-1970s, I often was enchanted and confused by the similarity of Korean and Japanese. For example, I stumbled across the word “judo.” Was it the martial art? No, that was “yudo” in Korean. It turns out that in at least literary circles, judo refers to the “way of wine.” Looking at the Chinese characters that originally formed the word, it was easy to recognize the first character, “ju,” from other uses of the same, referring to alcoholic beverages – often simplistically translated as “wine.” The second character, “do,” was the same as in Japanese, but as “tao” in Chinese. That character can be translated concretely as “path,” but it often connotes a more philosophical and spiritual meaning of “way.” The term Taoism traces its roots to this character. Getting back on path, the reader

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