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

Continue reading

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

Continue reading

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 &

Continue reading

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,

Continue reading

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

Continue reading

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

Continue reading

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

Continue reading

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

Continue reading

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.

Continue reading

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

Continue reading

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

Continue reading

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

Continue reading

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: SeanHayes@ipglegal.com. 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

Continue reading

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

Continue reading

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: SeanHayes@ipglegal.com. Sean Hayes is co-chair of the Korea

Continue reading

Korea’s Free Trade Agreement with Canada: Will it Pass?

Korea is near to inking an FTA with Canada.  This agreement will be the first FTA for Canada with an Asia-Pacific nation.  The major hurdle, for Canada, in execution of this agreement is opposition from labor unions and the auto industry. The Canadian auto industry is, particularly, concerned with the numerous non-trade barriers in Korea.  Increasingly, American automobile industry has been vigorously fighting Korea to drop regulations that seem to, only, benefit the local car manufacturers to the detriment of importers.  The Canadian auto industry is fighting the deal with U.S. stats.  The CEO of Ford Canada was quoted by the The Star as saying that: “the challenge with South Korea – we’ve been very strong in our opposition to it – is it’s not going to be a fair deal…. It is a closed market. We’re very fearful of what this means to Canada. There’s no upside, only downside

Continue reading

Korea’s U-Turn Program: Enticing Korean Companies to Return to Korea – Will it work?

The Korean government has passed the Act on the Support for Korean Enterprises Re-shoring from Overseas (“U-Turn Company Support Law”).  This Law, among other things, allows Korean enterprises that have setup operations overseas that return to Korea to benefit from: Assistance from KOTRA Government Paid Legal and Other Consulting Fees related to Re-shoring and windup Corporate Income Tax Cuts Land Subsidies Custom Clearance Support Use of Free Trade Zones Equipment Investment subsidies Foreign Worker “special activity visas” Employment subsidies Export Financing More details will be available soon and I will update the reader.  Will it work?   ____ Sean Hayes may be contacted for a consultation by emailing him at: SeanHayes@ipglegal.com or via the numbers shown to the left. 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

Continue reading

Dispute Resolution Clauses in Franchise, Joint Venture, Partnership Agreements in Korea

It is essential for all joint venture, franchise, shareholder and like agreements, in Korea, to include dispute resolution clauses. These clauses are fundamental to establish, amongst other things, the: prevailing language of the agreement; forum to resolve the dispute; process of resolving the dispute; damages and costs for breaching the agreement; enforceability of a judgment against a party to the agreement; and flexibility of mediation and arbitration rules. To often I see shareholder, joint venture, franchise and partnership disputes going badly because of poorly drafted agreements.  Some of these agreements are drafted by lawyers with, seemingly, little experience in litigation and arbitration in Korea and, thus, little sense of the manner in which these business relationships go awry.   One of these critical flaws in these Korean agreements is the lack of consideration of dispute resolution and the simple plugging into agreements standard dispute resolution clauses. Please see our other

Continue reading

How Sustainable is the Korea-Pop Music Phenomenon?

Among the many topics that have surfaced during the past two months as I traveled about Ireland and the US West Coast, I settled on the below, current report as I have been thinking for months of writing a column on just what the Korea Wave or Hallyu may actually be or not be. Samsung Economic Research Institute (SERI) does a decent job in describing what are the results of Hallyu around the world.  The analyst provides a decent account of how these boy and girl acts succeed, but there is no real attempt to explain why Korean pop (K-Pop) has been so popular or at least appear to be so successful.  My initial impressions from many observations and discussions have provided me with some very tentative conclusions. The most obvious and least surprising success factor for any kind of adolescent or young adult phenomenon is sex appeal or the

Continue reading

Investor-State Disputes/Arbitration in Korea: ABA Dispute Resolution Magazine

The American Bar Association Dispute Resolution Magazine has an interesting article on Investor-State Disputes that is relevant to Korea.  The article appears in the Fall 2013 edition of the magazine. Some of the “top” law firms in Korea have been notoriously conflicted – thus leading to choices made in agreements that are less than favorable to clients.  This has led, in part, to South Korea being perceived as not a foreign-friendly destination for direct investment.  Additionally, the courts, recently, invalidated an arbitration award against the Korean government – thus frightening more investors from the Korean shores.  Hopefully, Korea has learned from these mistakes.  Korea is a developed market with a vibrant local economy.  Protective measures are no longer needed.  Enforcement of the next arbitration award against the Korean government can be a way to enhance the international reputation of the Korean courts and, thus, increase investor confidence.    The article

Continue reading