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 subscription. All the typical forms of combinations, in Korea, including business transfers, cash-out mergers, triangular mergers, spin-offs, and the like are available in Korea under 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 is not

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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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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

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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: [email protected] 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

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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

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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

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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

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Negotiating a Joint Venture Agreement in Korea: Shareholder Agreements in Korea

We recently had a client with a myriad of joint venture issues.  The issues were caused, primarily, because of the joint venture agreement being drafted, only, in English without a review my client or a competent lawyer and most of the negotiations occuring through a translator.   For example, the American company believed that the joint venture agreement mandated that all disputes were to be handled via arbitration in Hong Kong.  The American company SEVP noted this to the interpreter as non-negotiable.  The agreement was drafted in Korean and the American SEVP never reviewed the joint venture agreement in anything but the Korean language.   Oddly enough, the law firm drafting the agreement never even mentioned this to the American Company. Because of this issue the SEVP and the in house attorney that assisted on this deal were fired.   The international law firm operating out of Hong Kong was, also, fired.  Please

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Disputes Between Joint Representative Directors in Korea

A typical issue that we assist multinational companies solve is disputes between companies with two representatives.  One representative director is appointed to the role by a Korean shareholder and the other representative director is appointed to the role by the foreign shareholder. Usually, the Korean side representative director is deemed the Joint Representative Director (JRD)/President and the foreign representative director is the JRD/Vice-President.   JRD/President is, normally, via the Joint Venture Agreement (JVA) given power over HR, Sales and Marketing, Production and the JRD/Vice-President is given power over Finance, Quality Control and Engineering. Disputes arise, frequently, because of JRD/President delegating his powers to an agent with the JRD/President retiring to a home in Hawaii (common with Korean conglomerates who often given these positions in suppliers to retired employees of the conglomerate), stepping into the other JRDs discretionary powers, the inability of the JRD/Vice-President to receive cooperation from Korean employees of the

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Tax Qualified Mergers in Korea: Amended 80% Rule for Triangle Mergers

Up until a recent amendment to the Korean Commercial Code and tax law, in order to qualify for a “tax qualified merger,” at least 80% of the paid consideration must be paid in the stocks of the surviving company to the shareholders of the company being acquired.  This law, thus, precludes the ability to receive this tax benefit in triangle merger situations. A triangle merger is, in short, when a subsidiary owned by the acquiring company (surviving company) merges with the seller.  A recent amendment provides an exception for triangle mergers.  The exception will be available from April of 2012. Recent posts on Korean Tax Law: Korea Tax Tribunal on the Adjustment of Value of Imported Goods and Transfer Pricing Tax Qualified Mergers in Korea Korean Individual Income Tax Rates: Incomes Taxes Rates on the Rise in Korea Korean Corporate Tax Rates:  Corporate Taxes to Rise in Korea Korea Islamic

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How Foreign Importers Entering Korea May Prosper from the Korean Middle Class in Korea being Screwed by Inflation: Screwflation

The Korea Times has reported that stagnant wages and food inflation is leading to “Screwflation” in Korea.  This phenomenon is a potential opportunity for importers with an eagerness to directly access the market.  The term Screwflation was coined by Wall Street guru Doug Kass.  Kass explains the notion in his, typical, straight forward manner: Screwflation, like its first cousin stagflation, is an expression of a period of slow and uneven economic growth, but, its potential inflationary consequences have an outsized impact on a specific group. The emergence of screwflation hurts just the group that you want to protect — namely, the middle class, a segment of the population that has already spent a decade experiencing an erosion in disposable income and a painful period (at least over the past several years) of lower stock and home prices. Importantly, quantitative easing is designed to lower real interest rates and, at the

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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

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Korea Merger Remedies by Korea Fair Trade Commission

Earlier this year, Korea’s Fair Trade Commission has announced the amendment of its rules on merger remedies through the Notice on Merger Remedies.  The amendment revises the prior Merger Remedies Guidelines.  The most relevant changes are listed below. The KFTC will, only, utilize behavioral changes when structural changes are impracticable or may be ineffective.  Structural changes, include, prohibition of a merger, divestiture and the transfer of intellectual property rights.  The Fair Trade Commission has noted that the preferred choice will be divestiture and a merger injunction will only be ordered when the divestiture is not feasible in the situation.   The Korea Fair Trade Commission has noted that the guiding principles of the Merger Remedies is: Effectiveness, Proportionality and Transparency and Enforceability.  Arguments from attorneys should be directed at the KFTC ability to meet these guiding principles by proposed actions.  The KFTC has increased investigations and has become much more

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Fines by the Korea Fair Trade Commission Increases for Abuse of Market Position and Unfair Trade Practices in Korea

The Fair Trade Commission of Korea has implemented substantial amendments to its guidelines for imposing fines on companies doing business in Korea.  The Amendments were detailed in a document the Fair Trade Commission of Korea calls the “Amendment Notice.”  This Amendment Notice comes into effect on April 1 of 2012. The Amendment Notice will likely increase the fines imposed by the Fair Trade Commission.   Prior to the Amendment Notice violations of the Monopoly Regulation and Fair Trade Act would result in lower fines than that authorized by Korean Monopoly Law.  The change will, likely, substantially increase the fines. INCREASE IN FINES FOR UNFAIR TRADE PRACTICE AND ABUSE OF DOMINANCE IN MARKET The Amendment Notice will likely increase fines for Abuse of a Companies Dominant Market Position in Korea from 2 % to 3% of revenues earned because of the violation.  Additionally,the fine will be increased from 1% to 2% of

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No Court Apprasial Necessary in Korea for In-Kind Contribution to Company

The Presidential Decree of the amended Korea Commercial Code notes that an appraisal by the Korean courts is no longer necessary when issuing equity stocks in exchange for an in-kind contribution in a company if: 1.  The amount of the in-kind contribution is less than KRW 50,000,000 and accounts for less than 20% of the entire equity of the company;2.  The value of the in-kind contribution is less than the book value listed in the balance sheet of the issuing company; and3.  Listed securities are contributed at a price equal to or less than the market price. Other posts on the amended Commercial Code of Korea: Korean Commercial Code Revisions Make Capital Reductions in Korea Easier Classification of Directors in Korea under the Korean Commercial Code: Inside, Outside and Other Directors in Korea Establishing a Company in Korea: New Corporate Forms Available under Revised Korean Code Squeezing-out Minority Shareholders under

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Maximize Benefits of Korea’s FTAs with U.S. and EU via Legal and Business Consultants in Korea

IPG Legal is happy to announce the formation of the first team of professionals dedicated to providing clients advice and representation on how to maximize the benefits of the KORUS and KOREU FTAs for EU, U.S. and Korean companies. IPG has compiled a team of Korean and international attorneys, senior company executives, patent attorneys, accountants, recruitment professionals, business consultants, custom agents and other professionals to provide services to American and EU companies doing business in Korea under the KOREU and KORUS FTAs.  Since, we are not simply a team of lawyers, we are proud to be the first one-stop shop for all companies wishing to import products into Korea, form strategic relationships with Korean companies and entrepreneurs, retain Korean employees, resolve disputes in Korea and obtain approvals to import and export products from and into Korea. Our extensive research over the last few months of the US and EU FTAs

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FTC of Korea: All Bark and No Bite?

The Korea Times published an article, last week, on Korea’s Fair Trade Commission (FTC) that sheds light on a business and, also, consumer-friendly program offered by the FTC. The FTC has been, strongly, criticized by the main-stream for using the powers of the Commission to fight inflation in Korea in order to appease the Administration and the citizens.  Some of the most liberal, now, are even claiming that the FTC is not going far enough.  The FTC has no friends other than the Administration in near sight. No main-stream antitrust/competition law scholar, international practitioner or Korean lawyer, that I know of, believes that one of purposes of an antitrust enforcement agency is to fight inflation. I have been quoted, in depth, on this issue in articles in the Global Competition Review.   If you are interested in antitrust law, the GCR is a must have journal. Even with this fact

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Acquiring Shares in Closed Korean Corporation in Exchange for Product at Discount: Don’t Forget the Due Diligence in Korea

I just received a phone call from a prospective client with a wonderful product that has been offered a sweetheart deal.  Whenever I hear that someone has received a no risk or sweetheart deal in Korea, a red flag immediately goes up in my head and I immediately request the client to let me do a couple of weeks of due diligence. The, ubiquitous, sweetheart deal is ownership of shares in company in exchange for some benefit from the foreign partner.  Too often, the Korean company is a shell.  The shell is broke with liabilities that far exceed assets.  The shell, however, is paying his management handsomely through a variety of interested transactions and access to the expense account.  In one case I regrettably saw, the company was under investigation of the prosecution. Thus, your sweetheart deal may lead to unexpected liabilities, the deterioration of your brand image, the eyes

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Is the Korea-U.S. FTA Dead at the Korean National Assembly? Watch the Streets.

A battle is underway in the Korea National Assembly between the radical left on the one side and the moderates and the right on the other side. The Korea-US FTA resembles the Korea-EU FTA, that has been signed into law, but many of the radical liberals in Korea believe that if America is out of the picture, that Korea will be unified with the North. Many of these liberals don’t care if the flag is a North Korean or South Korean flag. As with most issues between Korea and the United States, the radical liberals are great at making a small issue a great war cry. Often the war cry leads to violence in the streets of Seoul. In Korea, if the left can rally support of the youth, then, the left will win the battle. To date, the streets of Seoul are quiet. If they are not quiet in

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