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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Korean Corporate Tax Changes Affecting Businesses in Korea

I hate taxes, as I assume you also do, but my M & A and other corporate clients in Korea may be hating Korean taxes just a little bit less after the recent changes in Korean Corporate Tax Law. First, the Enforcement Decree of the Corporation Tax Act of Korea was amended this year to allow expanded preferential tax treatment in an acquisition of a Korean company. Before the present amendment, a majority/controlling shareholder could avail of “preferential tax treatment” in Korea only if the shareholder in the Korean company retained the shares for at least three fiscal years. The amendment provides an exception for instances when the shareholder is required to dispose of shares because of Korean legal prohibitions in owning the shares. Additionally, the amended Enforcement Decree will allow foreign corporations operating in Korea to deduct the untaxed reserve income from taxable income. The updated Korean Enforcement Decree

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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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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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Ebay Gmarket Merger Approved by Korean Fair Trade Commission

The Korean Fair Trade Commission (FTC) has approved the merger of  Ebay Auction with Gmarket. The companies combined, based on last years numbers, will control more than 72% of the domestic online shopping market. The remainder of the market is split, primarily by 11 Street  (SK Telecom unit) and Interpark. Ebay purchased Gmarket in 2009 for nearly USD 1.3 billion and was planning this merger, since the purchase. [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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Listen to My Mother: JVs in Asia

The following article was written for the Korean language Legal Times. My mother often told me, when I was much younger, to look both ways before crossing the street, carry an umbrella in the spring, and don’t go out alone in the dark. The advice can go a long way for Korean companies doing business outside Korea. and for expats doing business in Korea. As we all know, Korea companies and many foreign companies lament over the fact that it is near impossible for Korean companies, with the exception of the most savvy and cash flush mega-conglomerates, to enter the Chinese, Indian and Southeast Asian markets without local partners if they intend to attempt to penetrate the local markets. The common cry of Korean companies is to avoid JVs at all costs. In reality the issue is not the avoidance of JVs, but the procedure in choosing and dealing with

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Basic Agreements for Doing Business in Korea

Below are the basic Korean start-up agreements, normally, necessary for doing business in Korea. The list is not exhaustive. We will be writing on all of these agreements over the next couple of months. Please note we have articles about Korean shareholder (JVC), distributor, license and other agreements already posted.   Korean Stock Corporation (Chusikhaesa) Shareholder Agreement/Joint Venture Agreement Article of Incorporation Intellectual Property Assignment/License Agreement Confidentiality/Nondisclosure Agreement Employees and Management in Korea Employment/Contractor Agreements Work Rules Confidentiality Agreement Korean Customers/Vendors Service Agreement License Agreement Sales/Distributor Agreements Landlord Lease Agreement Website Terms of Use/Privacy Policy [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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Doing Business in Korea (by Tom Coyner: IPG Legal’s Senior Adviser)

IPG Legal’s Senior Business Adviser – Tom L. Coyner has published the second edition of his book on Korean business. The book is entitled “Doing Business in Korea” and may be purchased through Amazon or at most books stores in Korea. The book is highly recommended reading for anyone with business interests in Korea.  Sean Hayes has been noted as a contributor to the legal chapter of the book and considers the book a must-have for all doing business with Koreans. For those not in Korea having difficulty obtaining the book (Amazon only carries a few copies), please contact IPG Legal and we will obtain you a copy. REVIEWS “Underscored with a deep and nuanced understanding of modern Korean culture, this is a ‘must read’ for any foreigner in Korea.        — Robert Fallon, Former Chairman of the Board of  Korea  Exchange Bank “Examples and practical advice—it’s all here! This book

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Doing Business in Asia: Due Diligence, Agreements, Attorneys and Street Smarts

International attorneys mention in blogs, speeches, journal articles and in the press, frequently, that doing business in Asia is different and much more risky than in the West. Maybe we are not getting the word out clear enough. Understand, we are not trying to sell you anything you don’t need —-LISTEN UP – Get someone who works locally to execute these deals, get a carefully drafted agreement and engage in a little due diligence. If not, we love litigation, winding-up joint ventures and filing criminal complaints. These are the things that require a good deal more time than drafting and negotiating agreements. For example, a client involved in a USD 600,000 breach of contract/fraud case (option to purchase industrial machinery) with a Korean manufacturer recently contacted use with another issue in Korea. The client (I know you are reading this and we love you guys) concluded a deal with a

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Korean Joint Ventures: Bare Essential of a JV in Korea

A client, a minority shareholder in a foreign-capital invested company in Korea is involved in litigation with other company shareholders over issues the client had with the majority and other shareholders. The majority shareholder (controls the representative director) has been helping himself to the company profits through liberal expensing and interested transactions with the company and his personal company. The majority shareholder is also threatening to block distributions and is possibly increasing the stickiness of his fingers. Like situations WILL occur in many cases where a JV is not completed through a carefully drafted shareholder agreement and articles of association.  A majority shareholding will not prevent this situation from occurring, because of the nature and power of representative directors. I have said this numerous times, if you don’t want to support my extravagant lifestyle (actually I don’t have an extravagant lifestyle), get an experienced attorney to draft your Korean shareholder agreement and articles

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Stock Purchase/M & A Due Diligence Check List for Korean Companies

A client called and asked if I would draft a due diligence check list in order to advise on due diligence necessaries.  The client intends to purchase the stocks of a distressed 700+ employee Korean company. He noted that his staff would do the actual due diligence and all we should do is prepare the check list. I sent him this list for free and advised him to get someone to do the due diligence that knows what to look for. Hopefully, he will take my advice, since we see too many issues with clients looking to save a few bucks by using staff with no Korean experience. Korean companies often are very poor at keeping accurate records, thus, knowing what and where to find the usual red flags is critically necessary. The paper trail that is produced by Korean companies is often poor and without a knowing eye and ear you

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