Korean Compliance Checklist for your Business in Korea

The following Korean Compliance Checklist is intended to provide, only, a basic overview of the necessaries for keeping the law and shareholders off your back.  We, highly, recommend having a compliance audit preformed – if you have not completed a compliance audit of your Korean business in the past or recently.   1.  Do you Have a Registered Company/Business? Operating in Korea is not as simple as just leasing an office.  All businesses whether in the form of a corporation or sole proprietorship in Korea are required to register as business with the tax office and local government offices.  For some businesses the approval of a government agency shall be required.  Other articles on Korean corporate forms may be found at: Establishing a Company in Korea: Under Revised Corporate Code Limited Liability Companies Under the Revised Korean Commercial Code 2.  Do you Have Employment Agreements, Employment Rules, License Agreements, Joint

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Success in Life & Business in Korea by Senior Adviser to IPG

The most important lesson I learned from the Peace Corps was an inner sense of humility.  By my naturally contrarian nature, I have mixed feelings about having once been a Peace Corps volunteer in Korea. For example, I try to focus on being an international business development consultant, but every so often when a newspaper or magazine discovers I served in Korea during the 1970s as a Peace Corps volunteer, too often the reporter wishes to focus on my past rather than what I’m doing 30 or more years later. Frankly speaking, I want to use the reporter as much as the reporter wishes to use me. The reporter often wants a human interest story, and I want some free publicity for my business. Usually, what is printed does nothing for my business. But free publicity is still free publicity, so I play along. But all of this ends up

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Is your Korean Employee a Dispatched Worker and Thus a De Facto “Employee” under the Korean Labor Standards Act?

In 2015, the Korean Supreme Court detailed standards in determining if a Subcontracted Worker in Korea is actually a Dispatched Worker and, thus, a de facto employee of your Korean Company.  The designation has implications for retirement benefits, employment security and the payment of benefits. Dispatched Workers vs. Subcontracted Workers Companies employ, in Korea, often workers via manpower supply companies and via subcontracting agreements.  These employees are not retained directly by the Company, but are retained via a manpower company (“Dispatched Worker”) or a subcontracting agreement (“Subcontracted Worker”). The difference in these two type of relationships lies in the control over the workers – not in the mere nature of the retention according to the Korean Courts.  If the Company has a sufficient degree of control over the worker, in the eyes of the specific Korean court, the worker is deemed a Dispatched Worker and, thus, an employee of the

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Consequences of a Business Transfer in Korea: Employee Transfer?

In Korea, there is no statutory provision for the protection of employees in the event of a business transfer. Therefore, it has been left to the Korean courts to decide whether, and in what circumstances, employee transfer may occur as part of a business transfer.  The following is a basic explanation of the law of business transfer in Korea as it relates to the relationship between an employer and an employee. The Korean courts have generally held that, in the event of a business transfer, unless the employee objects, the employment relationship between the employee and employer (transferor) will automatically transfer to the transferee (without any need for the specific consent of the employee) – inclusive of the terms and conditions of the employment relationship existing at the time of closing of the business transfer, unless otherwise agreed to.  However, while it is a fairly well-established principle, this right to

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Sean Hayes Presentation to Korea Business Forum: The Korean Labour Law v. the Fourth Industrial Revolution

Sean Hayes commented on legal issues related to Korean Labour Law and Korean startups for the Korea Business Forum on October 18, 2018 at the Grand Hyatt Hotel in Seoul, Korea.  The Korean Business Forum is a group of professionals that share insight and their experience on issues related to doing business in Korea. The group is one of the most renowned business groups in Korea. “KBF meets twelve times a year and provides an opportunity for  senior executives to discuss among themselves and with experts specific issues likely to impact their operations and strategies in Korea and North East Asia. The form portrays a local and regional peerspective on today’s business environment in Korea and by combinijng the knowledge of EABC, KABC, outside speakers and AXP analysis’ ideas are presentaed to challenge participants. A stimulating and dynamic environment is provided with authoritative presentations which allow executivees to look beyond

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Liquidated Damages v. Penalties in Korean contracts

As an American attorney, it’s a bit strange for me to read a Korean contract and see how the word “penalty” is used.  In the United States (as well as other common law jurisdictions), when a contract contains a “penalty,” the clause is invalidated. Korea, however, allows some “penalties” in contracts. Cutting to the chase, this is merely an issue of confusing and overlapping terminology.  But since its confusing, its worth explaining. To start with, a bit of background on liquidated damages.  Liquidated damages refer to damages, the amount of which, the parties designate during formation of a contract as compensation for non-breaching parties in the event of breach.   In the US and other common law jurisdictions, liquidated damages clauses are invalidated if the purpose is to punish the breaching party, rather than to compensate the injured party.  These clauses are referred to by the court as “penalties.” Now, contrary

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Choice of Law Issues in Employment Disputes in Korea

Choice of law/jurisdiction issue often arise in Korea when an agreement chooses a law/jurisdiction for resolution of a dispute other than Korea, internal conflicts in the agreement exist (yes this happens) or no choice of law/jurisdiction clause was chosen and the agreement seems to be better handled by a foreign court, or by the law of the foreign jurisdiction, because of, inter alia, the locale of witnesses and the subject matter of the agreement. Choice of law/jurisdiction issues are governed in Korea mainly by Korea’s Private International Act (KPIA).  However, other acts often trump the KPIA, or else the courts use built-in “public policy” arguments to allow Korean law to trump the non-Korean chosen law. For example, in the majority of employment law disputes, Korea courts have invalidated choice of the law and jurisdiction clauses that note a law or jurisdiction other than Korea. For example, if a employer hiring someone for

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Enforcing Punitive & Liquidated Damages Awards against Korean Companies via Contracts with Foreign Subsidiaries of Korean Companies

A recent amendment of the Korean Civil Procedure Act added Article 217-2.  The Amendment has codified a holding by the Seoul Central District Court and other Korean courts noting, in part, that Korean Courts may refuse to “recognize foreign damage awards that clearly exceed amounts considered reasonable in Korea in violation of good morals and the social order of Korea” (99 KaHap 14496, S. Cent. Distr. Court, 10/20/2000). The Amendment allows Korean Courts, in Korea, the power to not recognize a damage award that the Korean Court’s perceives as “excessive.”  This standard-less “standard” leaves much wiggle room for Korean Courts. A typical situation is a case where an American importer sues a Korean conglomerate in a U.S. Court and damages are awarded to the U.S. company.  The damages may include liquidated, punitive and non-“actual” damages.  The American importer, then, attempts to enforce the judgment in Korea. There is a simple

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Exit Ban of Foreigners in Korea for Not Paying Taxes, Custom Duties or Violation of Law: Immigration Law Basics

The Korean Immigration Control Act and related acts allows the potential to permanently impose an exit ban on foreigners for nearly all acts that are determined by the Ministry of Justice as “harming the interest, public safety or order in the economy of the Republic of Korea” until the reason for the exit ban ceases to exist. (Immigration Control Act of Korea Article 4(1)5.) The Immigration Control Act of Korea, also, always Korean government agencies to request the imposition of an exit ban on foreigners.  Determination of the Ministry of Justice may be appealed within the Ministry and if turned down – may be appealed to the Administrative Court of Korea. Yes, this post is related to a matter we are presently handling.  The relevant provisions of Korean law includes: Immigration Control Act, Article 4 (Prohibition of Departure) Immigration Control Act, Article 4-2 (Extension of Period of Prohibition of Departure)

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Employment Background Checks in Korea: Not so Different from China

My friends over at the China Law Blog posted an article quoting the Chinese Business Leadership blog that noting that: “We were placing a GM for a Western family owned factory. They are small and troubled.  We found 15 thoroughly qualified candidates for the position. We had candidates tell us they worked at a company 5 years when they only worked. We had candidates tell us they were super valuable,  and the company does not want to let them go. We were able to find out that they were fired a year before while still in probation. As the last of the group of 15 refused to come clean and give us an accurate resume, we shook our heads in dismay. We are excellent at interviews and interview 90 minutes as our goal is to know. Despite that, we were unable to uncover these issues before the background check. We

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Korean Business Culture vs. Western Business Culture Explained by IPG Attorneys

We, often, have clients that proclaim that they can’t understand the way that Koreans do things.  They complain about an inability to reason, keep promises, express opinions and give a straight answer. Koreans have plenty of complaints about Westerners also.  Koreans, often, complain that Westerners concentrate too much on details and not enough on the big picture, care about money more than friendship and focus too much on efficiency. The root of these issues is vastly different cultural realities. Korean Business the Gangnam-Style Way The Lewis Cultural Model does an excellent job of explaining these differences.  The Lewis Cultural Model breaks cultures into three distinct categories: Linear-Active; Multi-Active; and Reactive. Linear-Active Cultures Linear-Active cultures base decisions and actions on logic.  Individuals in these cultures tend to be efficient, schedule oriented, and base decisions on a plan and reason.  These individuals are often criticized for focusing too much on the task at

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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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Injunctions Against your Former Franchisee for Competing Against your New Franchisee: Korean Franchise Law/Injunction Basics

Under the Fair Franchise Transactions Act of Korea (“Franchise Act”), a franchisee has the right, under Korean Law, to request the renewal of a Korean franchise agreement after ten years of successful operation of a franchise.  The Korean Franchise Act Article 13 (2) stipulates that: “A franchisee’s right to request the renewal of the franchise agreement may be exercised only when the total period of the franchise agreement, including its initial period, does not exceed ten years.” We wrote about termination of a franchise in other articles including: Termination of a Franchise in Korea. Courts in Korea are becoming increasingly apprehensive to enforce injunctions against operating of competing businesses filed by franchisors against franchisees.  The situation, often, occurs where a franchise is terminated and the franchisee operates a like business in the same location as the prior franchise.   Of course, all professionally drafted franchise agreements in Korea will have

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Involuntary Dissolution of a Company in Korea: Shareholder Disputes in Korean Companies

Under Article 520 of the Korean Commercial Act, a minority shareholder, holding at least 10 percent of the total and outstanding shares of a Korean company, may request to the Korean court of competent jurisdiction the dissolution of a company in Korea.  Korean court judges consider this procedure an extraordinary procedure and, only, rule in the affirmative, usually, after all other avenues to resolve the shareholder dispute have failed. However, this procedure is useful, in many disputes, in resolution of the shareholder dispute via litigation or pushing the defaulting shareholder into a settlement. Article 520 of the Commercial Act of Korea (Judgments for Dissolution) “(1) If, in any of the following cases, there exists unavoidable reasons, any shareholder who holds shares representing no less than 10 percent of the total issued and outstanding shares may request a court to dissolve the company; When the company’s business operation continues to be

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Damages for Material Omissions in Franchise Disclosure Documents in South Korea

In April of 2015, the Supreme Court of Korea ruled that under Article 4; Article (9)(1); and Article 41(1) of the prior version of the Fair Transactions in Franchise Business Act (“Franchise Act”) damages may be obtained, from a franchisor, for all material omissions (Supreme Court 2014 DA 84824,84831, April 9, 2015) within Korean Franchise Disclosure Documents. Monetary damages may be obtained under Article 37(2) of the Franchise Act of Korea and Article 56(1) of the Monopoly Regulation and Fair Trade Act of Korea for “material omissions” within Franchise Disclosure Documents and other document presented to prospective franchisees. The damages may include the cost of build-out, rental, franchise fees and even, in some cases, lost opportunity costs.  Additional, in some cases fines may be imposed, franchises can be de-registered and criminal charges may be brought against employees and management. The Fair Trade Commission may, additionally, impose a fine, even if

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Korean Independent Contractor Risks: Korean Labor Standards Act Basics

The Korean Court System has been less reluctant, in recent years, to deem a Korean independent contractor an “employee” under the Labor Standards Act (LSA).  This fact remains true even when an employer establishes that the independent contractor is aware that he/she was contracted as an independent contractor, thus, not a regular employee of the Korean company. Upon the establishment of the status as “employee” in Korea, the individual is entitled to all of the benefits of an employee including, inter alia, severance and employment security, thus, increasing the compliance, tax, payroll and other risks to the foreign-capital invested Korean company. Obligations to Employees under the LSA The obligations to employees under the LSA are extensive and beyond the scope of this short article.  The more significant and obvious are the Korean legal requirement to provide severance benefits and employment security. With regard to severance benefits, a company must pay,

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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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Can you Succeed in Korea without Resorting to Bribery?

Perhaps in a few warped ways, I have a bit of affection for the Foreign Corrupt Practices Act, which bars American companies from bribing officials overseas. From a nostalgic perspective, I recall when this act was made into law while I was at my first “real job” at The Chase Manhattan Bank in Seoul. The immediate reactions around me in the US business community were those of dread. We were certain that we would be put to disadvantage when competing with the locals as well as with other foreign nationalities. It turned out not to be the case. In fact, by and large we discovered the act gave us legitimate cover not to “go local” in conducting unethical and potentially sordid business practices. In time, other Western nations passed similar laws. While this clean business movement has hardly eradicated corruption, it has contributed to reducing unethical business behavior – most

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Is the Korean Market Open to Foreign Businesses by Tom Coyner

For many years, the Korean market has been synonymous with protectionism in many foreign marketers’ minds.  However, with the advent of a strong middle class and its successful struggle to gain a genuine democracy during the past two decades, many of the trade barriers have fallen. As more foreign products and services have become integrated into the Korean economy, a wider acceptance of foreign corporations has taken place. However, it would be a mistake to say this is a trend.  A number of counter factors remain — some of which are even strengthening.  Foreign companies, especially from the major countries, are regarded with mixed feelings. While high technology and advanced products are admired and coveted, they are at the same time somewhat feared by Korean businessmen who perceive the possibility of having to depend on them.  When using foreign IT products and services, Koreans sometimes feel they themselves are not

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Why are Legal Fees at Korean Law Firms Higher than New York and London: The Good, the Bad and the Ugly

I had a client note that their former Korean law firm was charging them double what they would have been charged in NY for a similar project.  This is not rare and the situation is, often, worse when litigation is involved.  A list of the best Korean law firms in Korea may be found at: 10 Best Law Firms in Korea. The Good: The Hourly Rates in Korea, normally, are Lower than Hong Kong, London, New York, Tokyo and Paris. Increased competition has brought down rates to levels equal to a decade ago. Korea is increasing the number of students that pass the bar exam. More international attorneys (American, British, German and Chinese) have entered the market, thus, increasing competition. More firms with international attorneys in Korean are capable of handling matters for foreigners. Competition is quickly bringing down the cost, however, foreign clients without knowledge of the market are

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