You had started a business in Korea by setting up a business entity under Korean law. It is natural that, at some point, you might consider withdrawing from the Korean market and getting your investment and profits back to your home country. You might also want to close the business in Korea and liquidate all debts and liabilities. If that is the case and a stock company or LLC is the legal form of your Korean business entity, subsidiary, or affiliate, here is what you should know about the company dissolution and liquidation process in Korea.
Company Dissolution and Liquidation in Korea
In order to wind up a company, Korean law requires the company should undergo dissolution and liquidation. Dissolution is the legal process whereby the company’s legal capacity is limited to liquidation activities. The dissolution doesn’t mean the company ceases to exist, but it transforms into a liquidating company. Liquidation is a process of closing unsettled business, collection, repayment, and distribution of the corporate assets to the shareholders.
The first step is making a resolution of the shareholders’ meeting. The article of incorporation of the company may set forth other events than the shareholder that permit the corporate dissolution than the resolution of the shareholders’ meeting.
One thing to note is that if the company has more debts than assets, it cannot wind up by dissolution. It should file a bankruptcy with the court. Then the court will take care of the dissolution and liquidation.
Upon resolution of dissolution, a liquidator is elected. Usually, the representative director becomes the liquidator, but any 3rd party can be elected. The liquidator is the legal representative of the company during the liquidation process.
Registration of Dissolution
Then the liquidator should register the resolution of dissolution and election of the liquidator at the court’s registry. It should be done within 2 weeks from the date of resolution.
As a next step, the liquidator should report the reason for the dissolution, asset list, and balance sheets to the court.
The liquidator should post a public notice through a local newspaper within 2 months. This is to urge the creditors to report their unpaid claims to the company within a specific period of time.
Repayment and Distribution
After the creditor’s report period ends, the liquidator repays the unpaid claims using the company’s assets. And the remainder of the corporate assets is distributed to the shareholders.
The company has no legal obligation to pay any creditor who didn’t file a report according to the public notice. However, if the creditor is the one that the company had already known its existence, the company must the creditor.
Registration of Completion
When the repayment and distribution are complete, the liquidator shall prepare and present the statements of accounts to the shareholders’ meeting. With the approval of the shareholders’ meeting, the liquidator shall register the completion of liquidation with the court within 2 weeks.
Upon this, the corporate register of the company is closed and completes the company dissolution and liquidation process in Korea.
This whole process usually takes 3 months.
The foregoing process deals with the legal aspect of the winding-up process. When starting with the dissolution and liquidation process, the company must report the closure of business to its local tax office.
Also, you will have to pay a Korean corporate tax for the company and a dividend income tax for the shareholders. The corporate tax shall cover the corporate income for the business year of the dissolution and any income earned by the liquidation. The dividend income tax of the shareholders shall be paid after the corporation tax is paid. If no distribution to the shareholders by the liquidation, no dividend income tax for the shareholders.
Cancellation of Government Permits and Licenses
If your business in Korea had required specific permits, licenses and authorizations from the Korean government, you will have to report your business closure and return/cancel the permits, licenses and authorizations to the Korean government.
You have to terminate the employment agreement and close the national health accounts and national pension accounts of the employees. You have to pay special attention to the Korean severance pay. Under Korean law, severance pay is mandatory. You cannot disregard this obligation even by the consent of the employee. This could be an unexpected burden to the foreign employers, so it is advisable to adjust the income level of the employment contract considering this additional payment to the employee in Korea.
If your company is a Foreign Direct Investment company, you should not forget to file a cancellation of FDI registration with the Korean government agency. This final procedure allows the overseas remittance of the dividends distributed by the corporate liquidation.
The company dissolution and liquidation in Korea is a straightforward process. It, however, requires various types of documentation and attention to the timeline and deadline of every and every step. This sometimes becomes a significant burden and hassle to foreign companies which want to withdraw from the Korean market. Our office has provided a one-stop service for foreign companies in Korea covering the entire steps and issues explained above. So if you need any assistance or have questions, contact our lawyer for more information.
With more than 18 years of experience supporting foreign clients across various fields of Korean laws, our law office provides legal assistance and representation needed for our clients to succeed in Korea.
Because of the generality of this update, the information provided herein may or may not reflect the most current legal development at the time of view, nor is it applicable in all situations nor should be acted upon without specific legal advice based on particular situations.
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