Distribution Agreement in Korea: Factors to Always Keep in Mind

Prior to going into any relationship with a distributor/agent in Korea, please read my post entitled: Finding a Korean Distributor: The Top 10 Things to Know Before Going to Bed with a Distributor in Korea. Please read that post in combination with this post, prior to engaging a distributor. We see too many distribution agreements that are mere spun U.S. distribution or agent agreements. Please have your distribution agreement and all agreements you have in Korea drafted by an experienced and proactive attorney that has on-the-ground experience in Korea. We see too many issues that could have been easily resolved by a carefully drafted agreement and a little due diligence. Issues to consider for your Korean Distribution Agreement: Will your distributor in Korea be your agent? If the distributor is an agent, generally, you will, only, be paying your agent a commission and you will be directly invoicing the client.

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Mergers & Acquisition Arbitration Matters under Korean Law at the KCAB

Mergers & Acquisitions (M&A) lead to disputes around the world, many of which are complex and involve money that may change substantially the future of a company, shareholders, employees and other stakeholders. Korea is no different in this respect. Korea witnessed the number of its cross-border transaction disputes explode during the 1997 IMF crisis and continue to steadily increase ever since. Many of these issues ended in arbitration and many others lead to criminal charges and into the Korean courts. While there are no readily available published statistics on the number of M&A transactions relating to Korea that led to arbitration , market trends show that the number of disputes have grown in relation to the overall growth of the M&A market. This article shall discuss the frequency of M&A disputes in Korea, the most common M&A issues arbitrated in Korea, as well as the procedural norms for damages and

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How to Invest in Korean Free Economic Zones (KFEZs): Korean Market Entry

Korean Free Economic Zones (KFEZs) are specially designated areas designed to improve the business and living environments for foreign firms looking to invest in Korea. In 2003, Korea’s very first KFEZ was launched in Incheon following the passing of the adoption of the “Act on Designation and Management of the Free Economic Zones.” Since then an additional seven have begun operation, bringing the grand total of KFEZs in Korea to eight. Companies with business in KFEZs are eligible for tax credits and other incentives under the Foreign Investment Promotion Act (FIPA). FIPA’s recent amendments passed in 2019 to provide better analysis on FDI impact on the Korean economy. For an article on this issue please: Revision to Korea’s Foreign Investment Promotion Act. As shown above, there are KFEZs operating in Incheon, Busan-Jinhae, Gwangyang Bay Area, Daegu-Gyeongbuk, Saemangeum-Gunsan, the Yellow Sea Coastal Area, and in Chungbuk. Each FEZ focuses on attracting

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Korea Due Diligence for Joint Ventures, Licensing, OEMs and Buying a Korean Company

Intending to execute a joint venture agreement with a Korean company? Buying a Korean company? Licensing technology to a Korean company? OEM with a Korean supplier? Selling to a Korean company?Before going to bed with a Korean company (or individual) do a little due diligence.  The motivation for this article is an article by my friends over at the China Law Blog. Due diligence in Korea is not much different than due diligence in China.  However, don’t forget what is said below: “get someone who truly knows what he or she is doing” to assist with the due diligence.  We see too many Korean lawyers and Korean business professionals with a lot of ego, but little on-the-ground high-level Korean experience or an inability to think strategically and proactively.  The few great due diligence professionals in Korea are, typically, not found easily at the ubiquitous Korean Law Firms, because of issues

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Korean Smart City Opportunities for Foreign and Domestic Companies Doing Business in Korea

The Korean government’s “2020 Smart Challenge” is officially rolling out with the Act on the Promotion of Smart City Development and Industry of Korea. The Act is coming into effect on Feb. 27, 2020. The Korean government is, specifically, launching three separate projects called: Korean City Challenge Open to large, SMEs and startup companies. Intended to encourage creative and technological solutions to problems in cities. Smart-mobility may be a large focus of the governments initiative. Korean Town Challenge Open to large, SMEs and startup companies. Intended to encourage businesses to create localized solutions to issues facing towns. Korean Solution Challenge Open to large, SMEs and startup companies. Intended to encourage the creation of smart solutions to issues facing towns and cities. such as smart crosswalks, smart playgrounds and other one-off solutions to issues. This 2020 Smart Challenge initiative shall be under a regulatory sandbox (an enclosed environment, supported by a

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The Korean Corporate Restructuring Promotion Act of 2018: Korean Insolvency Law Updates

The recently enacted Korean Corporate Restructuring Promotion Act (hereinafter as “CRPA”) focuses on facilitating “…constant corporate restructuring and promotes the stabilization of financial markets and the development of the national economy, by providing for matters necessary to promptly and efficiently implement corporate improvement of enterprises with signs of insolvency.” (Art 1 (Purpose) CRPA). The CRPA is intended to facilitate out-of-Korean-court restructuring procedures. Often, debtors prefer out-of-court proceedings over in-court proceeding, because the belief that out-of-court proceedings shall lead to more flexibility and less costs. In October 2018 a revised version of CRPA 2016 entered into force. The revised CRPA, provides eased legal conditions for creditor banks. The key amendments to Korean CRPA 2018 are noted below. Liability-Exemption for Creditors Acts and Omissions Creditor financial institutions, their officers and employees have liability while restructuring a debtor company. But they shall not be responsible for the results, if they properly fulfilled their

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Building Systems Before JVs in Korea to Build Trust between Partners

A blog referred to me by the China Law Blog has a wonderful post on Developing Trust in China by Building Trustworthy Systems/Processes.  The same advice given in this blog post is relevant to work done in Korea, Southeast Asia, China and even the West.  We believe that the verification of the developing and implementation of these system is, often, necessary before building a joint venture relationship with a Korean company. The value of building systems is not to be underestimated in Korea.  Koreans, in most respects, are wonderful at performing tasks that are well dictated and explained. While in the West, we often appreciate more autonomy and, often, don’t strive when systems are too rigid. In the East, many strive on ordered guidance. My law firm often works with business consultants to assist client in implementing systems that reward following these systems/processes. These “systems” are, often, incorporated by reference

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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.”  Thus, allowing a statutory means under Korean Law to squeeze-out a minority shareholder. 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

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Antitrust/Competition Consent Orders in Korea

in 2011, the Korean National Assembly passed, along with the Korea-U.S. FTA and related bills, a law that  allows the Fair Trade Commission of Korea (KFTC) to accept consent orders.  A consent order is similar, in many respects, to a nolo contendere plea. The consent order process has allowed the KFTC to punish without the admission of guilt to the company. This has lead to a decrease, in recent years, of a burden on the KFTC, more efficient enforcement proceedings, and has sped up many M & A deals – while allowing companies doing business in Korea to more adequately gauge the risk of a certain actions by the company. The disposition is similar, in a criminal matter, to a nolo contendere (no contest).  In short, the accused accepts the proposed punishment, however, doesn’t admit guilt. Thus, the company may save a little face and time, while the government is

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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 of

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Fiduciary Duties of Korean 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 can be held criminally liable).  Many acts (or inactions) 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 Korean 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

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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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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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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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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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