Limited Liability Companies under the Amended Commercial Code of Korea

Yuhan Hoesa is a form of a company in Korea similar to a western Limited Liability Company.  It has only been utilized, to date, by small privately held corporations and some financial companies under the Korean Asset-Backed Security Act, Korean Capital Markets Act or the Financial Investment Services Act. The revised Korean Commercial Code (KCC) allows for the more efficient and effective utilization of the Yuhan corporate entity.  I will be advising the use of this company form for some of my clients.  In the past, few clients would be advised to form a Yuhan Hoesa.  The new Korean Commercial Code is scheduled to be implemented in April 2012.  No benefits from the amended KCC may be availed of prior to the implementation of the amendments.  Major Revisions KCC Respecting Yuhan Hoesa: Unlimited Number of Members.  Prior to the amendments only 50 members was authorized without the express approval of the courts.

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Don’t Mess with the Big Boys in Korea: The Google Korea Saga Continues

In the past, raids have been conducted by the National Police Agency concerning alleged violations of Korea’s privacy law stemming from mapping software that is in direct competition with a product from the same parties that filed this present complaint. This time, the Korean Fair Trade Commission (FTC) raided Google headquarters in Seoul. The raid is intended to reveal information that Google is prohibiting or using tactics to delay the use of Korea’s Naver browsers and other browsers on the Android operating system. A complaint by the owners of Naver was filed to the FTC in April alleging, in short, that Google Korea has restricted the ability of smart phone manufacturers from pre-loading search engines onto the Android operating system. According to a Wall Street Journal article, a Google spokesperson is credited with noting that “Android is an open platform, and carriers and OEM partners are free to decide which

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Conflict of Interests in Korea: Lawyers as Outside Directors of Listed Korean Companies

The Korea Times published an interesting article that all of us at local law firms in Korea know very well.  Korean listed companies love to hire lawyers as outside directors.  Many of these companies know that these lawyers will make very little noise when it comes to board action or inaction because of the often strong financial relationship between the firm and the company.  Additionally, many of these lawyers are hired by majority shareholder or friends that are company directors.  The Korea Times article notes that: According to the report by Chaebol.com, of the 454 outside directors hired by the top 100 listed companies in the country, 76, or 16.7 percent, are lawyers or advisers for local legal firms . . . The Financial Supervisory Service, meanwhile, said it has no authority to regulate outside directors hired by companies, while the Justice Ministry said it could slap fines on violators for hiring lawyers,

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Fair Transactions with Subcontractors Act of Korea: So Buyer Beware or Simply Avoid the Risk and Buy the Seller?

Because of perceived abuse by Korean conglomerates of subcontractors, the Korean Fair Transactions in Subcontracting Act was passed in March of 2011. The Act was effective since the beginning of July of 2011. The Act, in short, grants wide discretion to the Korea Federation of Small and Medium Businesses. This agency is now authorized to request adjustments to Korean subcontractors contractually obligated delivery prices and additionally may impose treble damages for certain violations of this Act, including for the act of misappropriation of the technology of subcontractors. The Act also reverses the burden of proof in many instances, while requiring conglomerates to make technical requests in writing and to conduct formal subcontractor practice surveys. The treble damages component of this Act is very rare in Korea. Punitive damages are only available in the most rare of cases and only if authorized by statute. The inclusion of treble damages in Korea

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So Your Korean Company’s Employees Violated Law in Korea: What you Should Do? by Tom Coyner at Soft Landing Consulting

This is not a pleasant topic, but multinational firms and/or their employees occasionally trip over the law in Korea. Actually, this is sometimes easier to do than one might imagine. To illustrate the point, a long-term foreign resident investigated why his vehicle had been issued a parking ticket, given that others had been parking along the same curb for years. He soon discovered that most parking along curbs in Seoul is technically illegal. And such is the case for many things in Korea. This foreigner, a somewhat notorious wag, declared, “The whole country is illegal!” That is obviously an exaggeration but the notion works surprisingly well as a working theory. The problem can be traced to two major areas. First, the Korean laws are open to interpretation by enforcement officials and the community at large, given their vagueness and/or sometimes their impracticality. And second, since society is routinely cutting legal

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Classification of Directors in Korea under the Korean Commercial Code: Inside, Outside and Other Directors in Korea

In Korea, all company directors are listed on the Korean Commercial Register.  If you are doing business with a Company, always check the Commercial Register to determine if you are doing business with a person authorized to do business with your company.   Additionally, if you have been told that you are a director of a company (I have seen this trick a few times) make sure that you are listed on the Commercial Register. The members of a Korean board of directors may be listed as either: “inside directors”; “outside directors” or “other directors not directly engaged in the regular business of the company.”  In many Korean companies, one of the insider directors is, also, classified as the representative director.   The Korean company may also be required to have a statutory auditor.  Inside DirectorThis director is a director that is responsible for the day-to-day activities of the company. The director is

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Electronic Voting in Shareholders Meetings in Korea: To Vote or Not to Vote

Prior to the 2009 amendments to the Korean Commercial Code, electronic voting was not specifically authorized. I highly recommend to most clients the utilization of electronic voting if the foreign shareholder is in a closed corporation in Korea.  The method to include this voting  is well known by most attorneys experienced in the drafting of Korean joint venture agreements and shareholder agreements for non-Korean clients. In order for a company to utilize electronic voting: The board of directors must approve voting by electronic means; The Company’s articles of association must not exclude voting via electronic means; The notice of the general meeting of shareholders, must note that electronic voting is allowed, must note the internet address to cast the vote, the period in which votes may be cast and the basic technical details. The voting must end the day before the shareholder meeting; Prior to voting, the shareholder must have a “registered electronic signature.”  This

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Limiting Director Liability under Korean Law: Don’t Drop the Insurance Policy Yet

Prior to recent amendments to the Korean Commercial Code (KCC) it was impossible to limit the liability of directors of Korean companies without the agreement of all shareholders. Obviously, this was difficult, if not impossible, for most listed-companies. In order to relieve the burden on directors (and their insurance companies) and also to encourage qualified individuals to be willing to become directors (facial purpose), the KCC was amended to exempt directors from some liability in certain cases.  The details are found below.  Article 400(2) of the newly amended KCC allows the exemption of a director for liability of sums in excess of six times remuneration for inside directors and three times remuneration for outside directors. The specific details of what is considered “remuneration” is not yet clear.  I assume this may be made clear by the not, yet, implemented enforcement decree.  It will be interesting to see if bonuses and

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Resolving Korean Joint Venture/Partner Disputes without an Attorney — Maybe

Conflicts are inevitable, but not unresolvable. Since the circumstances surrounding Korean JV/partner conflicts can vary greatly and since the personalities of the involved parties play a major role in the confrontation, there may not be any ready-made prescription for the solution. There are however, some general ideas that may help in resolving conflicts in the local business environment. Personal ConsiderationsWestern logic, alone, is not usually sufficient to influence a Korean counterpart. Re-opening or referring to the exact stipulations of a contract is not desirable; it has been said “don’t confuse me with facts.” Such a factual confrontation will only raise the defenses of the local partner and even block any attempt at resolution. Once again, the matter of “kibun” plays a subconscious role in the resolution of conflict. Try to appeal to his emotional common denominator.Control Emotions Showing one’s emotions in a demonstration of anger can only exacerbate the situation;

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Squeezing-out Minority Shareholders under Korean Corporate Law

The amended Commercial Code of Korea provides for “squeeze-out” rights for shareholders holding 95% or more of the shares of a company. The law will be promulgated from April of 2012. The law also provides for a right of minority shareholders to demand a “sell-out.” It seems possible, under the very vague wording of the amended clauses, for a sell-out to take place at the same time as a squeeze-out with the potential of conflicting appraisals and procedures. We wish the amended clauses would have been more specific, since so many holes are evident that litigation is bound to occur and the outcome of cases will be near impossible for legal counsel to predict. For a squeeze-out the majority shareholder must establish that:  The squeeze-out is “necessary” to accomplish the company’s specific “business purpose.” The wording is so vague that it renders the clause meaningless without guidance from a court.

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Independent Contractors and Obligations under Korea LSA Speech to Amcham Korea

During a recent speech the head of the Korean Labor & Employment Law Team and I gave to the American Chamber of Commerce in Korea, a few interesting topics came up that seemed to be of particular interest to participants. For the Power Point of the presentation click HERE. Factors Courts use to Determine if an Individual is an Employee and Thus Obligated to Provide Severance and Employment Security etc. Under the Korea Labor Standards Act (LSA). These following factors are used by the Korean Supreme Court to determine if one is an “employee” under the Korean LSA. The factors are not weighted equally by courts in Korea. Please note that these factors are not weighted equally by courts and all factors are not required to be met for an independent contractor to be deemed an employee under the LSA. An answer in the affirmative to anyone one of the

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Who Won with the Korean Compliance Law?

Appeared in the Korea Times on June 3, 2011. The National Assembly of Korea has handed Korean companies a fantastic opportunity with the recent passing of amendments to law requiring the appointment of compliance officers to large listed companies. Various pressure groups in Korea have expressed support and opposition to the new requirements that listed companies employ lawyers or law professors of five years experience to oversee the companies’ compliance obligations and to act proactively to head off legal issues before they escalate. Some critics of the new law say it is just a way to find employment for some of the thousands of Korean lawyers who, now, qualify each year. Others, such as Ryu Kwang-choon, the manager of the Korean Listed Companies Association, was quoted as saying, “Large companies have a team of lawyers or a legal department and deal with related issues, but small- and medium-sized firms don’t

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Korean Commercial Code Revisions Make Capital Reductions in Korea Easier

The recently amended Korean Commercial Code (KCC) will make it simpler for local and Korean foreign-capital invested companies to make nominal capital reductions. The law will come into effect next year. Previously in the KCC, there was no differentiation between a real capital reduction, in which assets are distributed to shareholders in proportion to their holdings, and a nominal capital reduction (also known as a reduction of capital “without consideration.”) A nominal capital reduction is, obviously, inherently less cumbersome than a real capital reduction. In the case of a nominal capital reduction, the company in Korea could choose to reduce the book value of assets to, in turn, reduce losses shown in financial statements. This tactic was often used in Korea to help a company show more accurate figures when the real value of the loss is significantly less than the book loss. However, even though there is no reduction

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Korean FTC Fines Korean Refiners for Collusion

In a possible reaction to Korea’s rising inflation, the Korea Fair Trade Commission (KFTC) fined the four major Korean refiners a total of KRW 434.8 billion (USD 442 million) for preventing competition through collusion. The KFTC noted that: “In their meeting in March of 2000, officials of the four refiners agreed to respect the rights of former exclusive oil suppliers to gas stations and refrained from supplying their products to even gas stations with ties with a particular brand in the past.” The KFTC claims that this alleged collusive act, led to consumers being forced to pay increased margins to suppliers even when prices of a barrel of the unrefined product decreases in the international markets. Korea government is attempting to do anything to reign in on inflation seemingly in every manner with the exception of raising interest rates and the suppliers of fuel, food products, autos and other top

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Failed Korean Corporate Compliance and the Role of Attorneys in Korea

The following article appeared in the Korea Times on May 6, 2011. The National Assembly of Korea, recently, voted in favor of a bill that requires listed companies with large market capitalizations to establish independent compliance support offices. Business organizations strongly opposed the bill. The details of the system are not yet known, since many key aspects of the bill have been delegated to the president through an enforcement ordinance. The surface purpose of the bill is to improve companies compliance with Korean law, thus, upgrading the image of Korean companies domestically and abroad. Some scholars have noted that transparency and other corporate governance issues, within Korean companies, have led to the “Korea discount” and that the discount may be overcome with more active compliance departments. Additionally, fear has spread that an Enron-type scandal may hit Korea in the future and that the implementation of this system may contribute to

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KORUS FTA and Korean Anti-dumping Speech by American Law Firm Winston & Strawn in Korea

Winston & Strawn LLP attorneys gave an enlightening presentation for Amcham today in Seoul, Korea. Attorneys James P. Durling and Daniel L. Porter discussed KORUS FTA and anti-dumping actions against LG Electronics and Samsung by Maytag. What motivated me to write this post is a comment by James Durling, who emphatically noted that Republicans should consider dropping their plan to bundle the three pending U.S. FTAs in favor of pushing for the immediate vote on the KORUS FTA. Good point. The Republicans are pushing to bundle the three FTAs, partly, out of a fear that the Columbia-US FTA may not get to a vote, in the near future, because of the political sensitivity of the Democratic Party to the ratification realities that are plaguing Columbia (strong labor union and violent opposition in Columbia). The Republicans also wish, before the next election, to get President Obama to sign the FTAs to

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Trade Terms for Korean Agreements: Get the INCOTERMS for the IPHONE App

Our friends at the China Law Blog have posted a brief review of a very useful application for those managing international agreements. The application is for those of us without adequate brain cells left to memorize all the INCOTERMS. Also, it contains 2010 revisions. The application is only available for the IPhone and the IPad. All of us stuck with the Blackberry or an Android phone are out of luck. The application may be found at: http://www.tradedict.com/.The China Law Blog may be found at: http://www.chinalawblog.com/ [email protected] (c) Sean Hayes – SJ IPG. All Rights reserved.  Do not duplicate any content on this blog without the express written permission of the author. [email protected]

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EU Korea FTA: On the Fast Track to Passage

The Korean Free Trade Agreement with the European Union, on April 5, 2011, was approved in a Korean cabinet meeting, thus, allowing the Bill to be sent to the Korean National Assembly for approval. The Korean EU FTA will eliminate, within five years of enactment, nearly 98% of Korean import duties. The Korean government and EU trade delegation agreed to promulgate the law by July 1 of this year, but if the Bill is not sent to the assembly before May (May Day Election Year Protests) – the Assembly may run into difficulties in promulgating the law before the July deadline. The EU parliament approved the law in February of this year; the Korean side has been slow because of some puzzling translation errors (200+) and the typical political bickering issues. This FTA will open many opportunities for products that were subject to the higher range of tariffs rates and also will bring down the cost of

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Changes to Korea Insurance Business Act

The Insurance Business Act’s (promulgated on July 23, 2010) Enforcement Decree comes into effect this January 2011. The major changes to the Act and Enforcement Decree are listed below. 1. Credit-Linked Notes are Now Specifically Authorized The previous Act banned providing any debt guarantees by third parties, thus, facially prohibiting many derivative-linked securities common throughout the Western world. 2. Enhanced Duties for Insurance Salespersons, Representatives and Insurers Out of an impression by the government that many insurance companies are targeting the most vulnerable in society, the Act now provides many of the protections afforded to insurance customers provided by the Korean Financial Investment Business and Capital Market Act to financial product customers. Most of these duties are only applied to those selling to the “non-sophisticated” purchasers. A. Duty to Recommend a Product Suited to the Needs of the Insured Thus, the insurance representatives/agents (“agents”) should review the insured present policies,

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Facebook under Watch of the Korean Communications Commission

Facebook has received, in short, an order on December 10, 2010 from the Korean Communications Commission (KCC) to modify its site to comply with Article 22 of Korea’s “Act on Promotion of Information and Communication Network Utilization and Information Protection” which states that: “If an information and communications service provider intends to gather user personal information, they shall obtain user consent.” The order requires Facebook to receive explicit consent from users before personal information is revealed to other users or utilized by third parties. Facebook has 30-days to comply or challenge the order. We will see soon if Facebook will simply take down the Korean language site, challenge the order, comply with the order or simply ignore it. Facebook, as of posting, doesn’t have a local office, thus, enforcement will be difficult for the KCC. Facebook has almost two and half million Korean users and a Korean language version of

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