7 Musts to Succeed in Business in Korea

We have the unique pleasure to have a bird’s-eye view of numerous clients’ businesses in Korea.  At this stage of our experience in Korea we are, typically, able to determine which companies will, likely, succeed and which companies will, likely, fail.  We are far from perfect, but companies that succeed in Korea, normally, have the following seven things in common: 1.  Comprehensive Understanding of the Korean Market by a Neutral Local Consultant This understanding, normally, comes from one of the few business consultants, in Korea, that are capable of providing a decent market overview with a detailed list of potential targets and contacts within these targets.  We, only, work with a handful of Korean consultants, since most, we find, don’t have the skills necessary to proactively assist client, but still sell market research reports that seemed to be, only, obtained through a Google search. 2.  Great Initial Representative Director for

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Korean Feasibility Studies will Save You Money and Headaches in Korea

I have worked in projects in Korea for over a decade and I see too many investors and companies engaging in projects in Korea, without conducting an adequate or even any feasibility study. The feasibility study should be performed by an attorney in Korea with the active participation of a seasoned Korean business consultant. A business consultant, alone, is not enough. Attorneys deal in numerous projects simultaneously and sometimes have a better grasp of the market and pitfalls than business consultants, because of these experiences. Beware, however, some attorneys that only deal with transactional work are, too often, not adequately prepared to give the advice necessary to assist clients. I always work with business consultants, since they often do a great job of complementing my experience. My favorite to work with in good old Tom Coyner. Tom has been in Korea since the 1970s and this old hat has seen

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So you want to do business in Korea? Listen to my Mother. Korean Joint Venture/Partnership Basics

My wise mother once told me to: look both ways before crossing the street; carry an umbrella to school in the spring; and don’t go out alone at night. The advice can go along way when doing business in Korea or even in most parts of the world. Getting involved in business in Korea is unwise without due diligence (Look both ways before crossing the street), carefully drafted shareholder agreements (carry and umbrella in the spring) and some Korean know-how (don’t go out alone in the dark). Korean statutory law provides less protection to non-controlling shareholders than in Europe, States and in many other parts of the world. This article is not intended to discourage investors. Don’t avoid joint ventures in Korea; just enter them with understanding, care and a Korea-savvy guide. The horror stories about the pitfalls of doing business in Korea can fill a book. However, the same

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Expiration Versus Termination of a Distribution Agreement in Korea: Korean Distributor Basics

While Korean Law does not specifically detail the differences in treatment in law between the non-renewal (expiration) of a distribution agreement versus the termination, in reality, Korean courts are less likely to rule in favor of distributors in cases where a distribution agreement is not renewed.  Thus, typically, it is advisable to have a distribution agreement based on a specified term of years.  However, even with the expiration of the Korean Distribution Agreement, termination risks exist. In some cases, Korean courts have noted that termination and even non-renewal is a violation of Korean Law since the non-renewal or termination of the Korean distributor was not based on “good faith.”  In many cases, Korean courts have required a showing of “good cause” to terminate or even to not renew a relationship.  Contractual formalities and structural realities often assist in allowing a non-performing distributor from prevailing in court.  Thus, a nuanced and

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Statutory Severance Obligations in Korea after Acquisition of Company in Korea

Korean employers have, attempted, in many cases unsuccessfully, through mergers, to reduce the statutory severance obligations of a Company through a company acquiring a Company with a workforce with large outstanding severance obligations.  The acquired company, in most cases, is strapped with debt and an inefficient workforce. The acquiring company, inter alia, often alleges that as a separate legal entity it owes no duties to the employees of the acquired company. The acquiring company, thus, alleges that the employees of the old Company are not obligated to receive the accumulated years of severance, thus, reducing vested employee obligations. The Korean Supreme Court has ruled, on numerous occasions, that if an employee has continued work with the new acquiring company that the duties owed to the employees by the acquired company in Korea is owed to the employees by the acquired company, thus, often negating the benefit of the merger. Some

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Korean Merger Control and the Korean FTC

The Monopoly Regulation & Fair Trade Act of Korea (Fair Trade Act of Korea) is the main regulation governing mergers and acquisitions in Korea.  In the majority of cases , reporting and approval is not required for a target company with a yearly turnover of less than KRW 20 billion.  The specific jurisdictional thresholds shall be addressed in a followup article.  This article is intended to, simply, provide a list of the main Merger Control issues .  A more substantive article shall follow. The following types of transactions are required to be reported and approved, in most cases, by the Fair Trade Commission of Korea (“KFTC”). Purchase of 15% of the shares of a listed domestic company; Purchase of 20% of the shares of a non-listed company; Establishment of a joint venture or increasing shareholdings to meet the thresholds in 1 or 2 above; Merger with a company; or Purchase

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English-speaking Korean lawyers and International Lawyers at International Law Firm in Korea discussing issues of Korean Law

IPG Legal is a leading client-focused international law firm with offices in Korea that is, often, selected over the ubiquitous Korean Law Firms when success is essential and success depends on nuanced street-smart advice, proactive  and unconflicted representation. Our attorneys are, intentionally. different from the crowd.  From our retired judge partners to our junior associates, we are all trained with an intense focus on client success, lawyer proactivity, and to understand the nexus between your commercial and legal needs. Our attorneys shall never push to you useless memos, non-nuanced legal advice or get you into litigation without an honest assessment of the merits and shortcomings of the matter. We are  – intentionally different from the crowd.  Globally Experienced – Locally Connected.  We are IPG.  Korean Legal Practices Korean Antitrust, Competition & FTC Arbitration, Int’l & Domestic Korean Civil Litigation Korean Criminal Defense Korean Corporate Law & Compliance Korean Employment, Labor &

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Entering into a Joint Venture/Partnership in South Korea?

One of the major parts of my law practice for international clients, in Korea, is the structuring of joint ventures and the resolution of joint venture disputes in court and through arbitration.  I find, in most of these cases, the non-Korean party is not in need of a joint venture with a a Korean party to succeed in Korea and the Korean party does not realize or has no intent in satisfying obligations under the joint venture agreements.  The parties are commencing a relationship, thus, with an immediate potential for failure. Thus, many disputes are caused by the realization by the non-Korean party that he/she doesn’t need the Korean party and the realization by the non-Korean party that the Korean party had no intent, at signing, in following the joint venture agreement.   Do You Need a Korean Joint Venture to Succeed in Korea? We find that a joint venture is,

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Korean M & A Due Diligence Checklist: Mergers & Acquisitions Due Diligence in Korea

This Korean Merger & Acquisition Due Diligence Checklist is not a substitute for retaining a Korean-based international attorney to assist with your M & A.  Please, only, use this checklist as an initial guide and to insure that your attorney is checking off all of the boxes. Korean companies often are poor at keeping accurate records that reflect a rational reality.  Thus, you must know where to find the red flags.  These skills come with experience in Korea, thus, the need for someone with significant commercial and legal experience in Korea. M & A Due Diligence Checklist Company History Company History/Background Founder, Family & Key Individuals in Company Historical Profitability Credit Rating Primary Customers, Suppliers & Vendors Reason for Sale or Merger Stinky Fish & Stinky People Old Hats Financials & Shareholder Distributions Audited Financial Statements Tax Returns, Tax Certificates, Tax Filings & VAT Receipts etc. Government Filings, Government Notices

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So you Want to Start a Partnership/Joint Venture in Korea?

Business, in Korea, can be profitable and enjoyable.  However, business in Korea can, also, lead you to a jail cell and premature balding.  One key to success, in Korea, is to get the Korean joint venture structured by a professional from the start of the relationship with your joint venture partner(s).  Don’t just download a joint venture agreement or partnership agreement from the internet.  Vet your partner and, also, learn the expectations of your partner. We know you have “limited funds” (we all have limited funds -even multinationals and Donald Trump have limited funds) choosing to forgo having the deal structured by a professional and just downloading an agreement off the internet will, likely, lead to you having even less funds, less time and less hair. Do not be what my father likes to call young kids these days – knuckleheads.  I saw cases that ended up in the Prosecutor’s

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Samsung’s Win Against Elliott is Korea’s Loss According to Bloomberg

Mr. William Pesek, a columnist for Bloomberg, wrote an interesting article on the battle between Samsung and Elliott.  With a majority of the local Korean vernacular running stories how the  Samsung merger will increase investments (Samsung Merger to Driver Growth in Pharmaceutical Business), Bloomberg is questioning if this will be the final straw for an increasingly perceived anti-foreign capital destination. The article is a worth a read.   The articles notes, in part, that: “Now that it’s likely to go through, the deal will embolden Korea’s other family conglomerates — known as chaebol — to act even more selfishly than they do already. It’s also sure to perpetuate the so-called “Korea discount,” which depresses stock valuations relative to developed-market peers. That’s the price for the sort of dodgy corporate governance regularly displayed by Samsung, Hyundai and other Korean companies. Corporate Korea needs to understand shareholder skepticism is a normal part

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Merger/Acquisition Opportunities in Korea: Lotte Korea Buys KT Car Rental from KT Corp.

In a sign of changing times in Korea, KT Corp., a company best known for its telecom business, has sold its car rental business to the unlisted Hotel Lotte Co. Ltd., a company controlled by Lotte Group. The publicly reported acquisition price is over US$900 million. Lotte is a leading Korean-Japanese hotel company with its hands into about everything imaginable including construction, retail, textile, food products, beverages, oil & gas and entertainment.  However, it competitive advantage is in retail shopping and the hotel business.  KT is the former national telecom and, now, a leading player in both fixed and mobile telecommunication.  Yes, I also question why a telephone company would own a car rental company.  The answer lies, often, in the excessive need for conglomerates to grow their ranks of buildings, employees and news headlines.  Often the reason for business lines being formed outside of the competitive advantage of the

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Credit Rating Agencies in Korea: Due Diligence of Your Supplier, Franchisee, Joint Venture Partner & Distributors

Korea has established four credit rating agencies.  The four agencies are: National Information & Credit Evaluation (NICE); Korea Investor Services (KIS); Korea Ratings (KR); and Seoul Credit Rating & Information (SCRI). Some reports provided by these rating agencies are provided in English.  However, many of the English reports are not complete.  Thus, it is advisable to make sure if you have an English version of a report that it is same as the Korean version of the report. Additionally, it is best to have someone with knowledge of the Korean business climate review the reports, since some clues to issues are unique to Korea. Some companies are required to have a credit rating performed by a Korean rating agency.  If a company wishes to issue asset-based securities and unsecured bonds the company, in Korea, will need to apply for a credit rating via one of the Korean credit rating agencies.

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Establishing a Manufacturing Business in South Korea: Top 14 Things to Know Before you Go

Korea, in most cases, is a much better choice for the manufacturing of chemical, petroleum, construction equipment, complex crafted metals, specialty steel, automotive, semi-conductor, medical and pharmaceutical equipment and goods than China and most nations in Asia, because of Korea’s skilled work force, government incentives and increasingly transparent business practices.  In many cases, manufacturing in Korea will not, in the end, be more costly than manufacturing in China, because of the increased efficiency of Korean workers and the, often, lower cost of doing business.  China is no longer cheap and China will never be easy.  However, before going into any manufacturing arrangement in Korea here are the Top 14 things you need to know before investing money in Korea in a manufacturing venture or like Korean venture. The list assumes that you will have a local company as your JV partner in this manufacturing venture in Korea: Register all Intellectual

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Fiduciary Duties of Directors/Representative & Controlling Shareholders of Korean Companies

Directors of companies, registered in Korea, many be held criminally and civilly liable for acts as a director (in limited cases even controlling shareholder).  Many acts that would not be deemed criminal in the West are, often, deemed criminal in Korea.  Additionally, matters that are considered in the West as mere “civil” matters, often, begin and end at the prosecutor’s office. A little due diligence, complying with corporate formalities, nuanced corporate governance practices and a little street smarts coupled with good liability insurance is a good start in succeeding in business in Korea.    We have been on both sides of matters were directors (and even controlling shareholders) have been prohibited from departing Korea, jailed and fined.  In most cases, liability is unlimited and it is presumed that a director has complied with the decision of the Board of Directors if no dissent is noted in Board Minutes. Article 399

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Tender Offers in Korea: Conditional Offers under Korea Capital Markets Act

The Korean Capital Market Act and related regulations dictate the basics for tender offers in Korea.  The rules in Korea are, simple: 1.  If the total number of tendered shares is less than the intended number of shares to be purchased by the tender offeror, the offeror may not purchase any of the shares; and 2.  If the total number of tendered shares is more than the number that is intended to be purchased by the tender offeror, the tender offeror shall purchase the shares pro rata. The tender offeror is required to validate that it has the resources to purchase the shares. Other articles on The Korean Law Blog that may be of interest to the reader: Minority Squeeze-outs in Korea Korean M & A Basics Korean Due Diligence Check List Selling to Korea via Distributors, Agents & other Non-Direct Sales Channels Joint Venture/Partnerships in South Korea Test the

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Minority Squeeze-outs in Companies in Korea

The amended Korea Commercial Code of 2012 allows majority shareholders with 95% of the shares of a company in Korea, to purchase the shares of the minority for “fair value.” Fair value may be determined by the court if the parties are unable to reach an agreement within 30 days of a request by the majority shareholder to purchase the shares of the minority.  We advise that you place a mechanism within your shareholder agreement (if possible) noting the manner of determining fair market value.___ 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. Sean is ranked, for Korea, as one of only two non-Korean lawyers as

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Statutes & Regulations Governing Business Combinations in Korea: Korean Mergers & Acquisitions Basics

Most business combinations in Korea take the form of share transfer, asset transfer or a share subscriptions.  All the typical forms of combinations including business transfers, cash-out mergers, triangular mergers, spin-offs, and the like are available in Korea, since the recent revisions to the Korean Commercial Code.  However, the difficulty in getting a deal done in Korea is, often, frustrated, because of bureaucratic uncertainty and the varying laws that govern transactions. You will find, though, that most of the least political sensitive acquisitions in Korea can be accomplished cost-effectively and efficiently with proactive counsel in Korea.  The present Park administration is, attempting, to reduce some burdens on foreign investors, however, numerous political obstacles are in place, because of the present political dynamics.  We don’t expect any changes in Korean Law in the near future with regard to M & As, however, we will update the reader if changes occur.  This

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Establishing a Company in Korea: New Korean Corporate Forms Available under Revised Korean Code

According to the Ministry of Justice, over 95% of corporations in Korea are formed as a Chushik Hoesa, while the Korean Commercial Code (KCC), at this time, defines four different types of Korean potential business entities.  In order to allow a little more flexibility, two new business forms have been created.  The recent amendment to the Korea Commercial Code, that will be promulgated from April of 2012, introduces two new forms of Korean business entities: Hapja Johap (LLP) Yuhan Chaekim Hoesa  (LLC) We expect that more foreign investors will choose the Hapja Johap and Yuhan Chaekim Hoesa forms and few new market entrants will utilize the Yuhan Hoesa form, because of the added flexibility of the Hapja Johap. Chushik Haesa (Joint Stock Company – Co. Ltd./Corp./Ltd.) Chushik Hoesa is the only corporate entity that is allowed, at the present, to publicly issue shares.  The revision will not change this.  The vast majority of incorporators in Korea chose the

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Witholdings Taxes on Transactions between Korean & Hong Kong Companies

The Republic of Korea and Hong Kong signed a double taxation treaty on July of 2014.  The treaty will come into force, if ratified, by the respective assemblies.  Under Korea Tax Law, the, normal, withholding tax is 22%.  The main purpose of the treaty is to reduce this rate and, also, allow the governments to share information on potential tax evaders.  This double taxation treaty, among other things, includes provisions for: A 15% Withholding Tax on dividends and a 10% Withholding Tax if the company receiving the funds owns a minimum 25% interest in the company remitting the dividends;  A 10% Withholding Tax on most interest and royalties;  A cooperation mechanism to share tax information in order to apprehend Korean tax evaders; and  Taxation on capital gains, only, in the country where the income was earned.  ___Sean Hayes may be contacted at: [email protected] Sean Hayes is co-chair of the Korea

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