When you start a business in Korea, whether it is a Korean subsidiary or a startup, choosing the right business structure has huge implications for its operation, liability, and future investment.

In the U.S., a joint stock company(C-Corporation) and a limited liability Company(LLC) are often used as business entity by foreign investors and startups. The same applies in South Korea. 

So, in this article, our Korean business lawyer explains these two entities with more emphasis on the Korean LLC, which is called a Yuhan Chegim Hoesa(YCH).

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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.

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Like many other countries, South Korea has its own merger notification & competition review regimes.  This means if your M&A deal involving a Korean company or business meets the merger notification thresholds prescribed in the rules of the Korean competition authority, you need to make a merger filing. And your transaction becomes subject to the authority’s competition review.  Thus, it is imperative that the dealmakers should be fully advised on the Korean merger filing rules for the applicability and for any potential risks.

Korean M&A Regulatory Law and Agency

In Korea, the Monopoly Regulation and Fair Trade Act (MRFTA) regulates the M&A and other similar transactions.  The MRFTA appoints the Korea Fair Trade Commission (KFTC) as the regulatory agency that is in charge of receiving the pre-merger notification and carrying out the competition review.

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Q) I would like to enquire about a situation of a director working at a Korean subsidiary (corporation) of U.S. company, who has secretly started a similar trade of business while still in employment with his current employer.  Having served in a managerial position, he has access to his employer’s full clientele’s information, trade secret and now he started the same business as his employer, directly causing many economic losses to his employer.  Is there any way legally to prevent the person from causing further damages?  

A) Under Korean law, a director of a corporation bears a fiduciary duty.  Thus the directors shall perform their duties in good faith for the interest of the company. Their activities shall not violate the statutes and the articles of incorporation of the company. (more…)

그림 67When a foreign incorporated company does a business in Korea, it is very fundamental to determine whether the company is a domestic or a foreign corporation for Korean tax purposes.  A major difference in tax liability is that, in principle, a foreign corporation is liable for taxes only on the incomes generated in Korea rather than a worldwide income.

In this regard, the Corporate Tax Ac of Korea(“CTA”) defines a “domestic corporation” as a corporation with its headquarter, main office, or actual business management place located in Korea, and a “foreign corporation” as an organization which has its head office or principal place of business in a foreign country.  What makes distinguishing domestic corporation for a foreign corporation under CTA difficult and challenging is the meaning and application of the term of “actual business management place” set forth in CTA.  For example, in a case decided by the Supreme Court of South Korea in 2016, a Singapore incorporated company had challenged the Korean tax authority’s decision that its actual business management place was in Korea.

The Singapore company had a wide variety of international business portfolio and among them was a trading foreign issued corporate bonds including a Korean corporate bond.  The Korean tax authority decided that the company’s actual business management had taken place in Korea after finding the facts that the company had a liaison office in Korea, one of the directors was residing in Korea and financial documents relating to the Korean business was stored and managed in Korea.  And this (more…)

Question) I am an American expat working in South Korea.  Originally I was working for a U.S. company incorporated in the state of New York, but 3 years ago I was seconded to the Korean branch of my U.S. company, and have been working for the branch until now.  When I was seconded, my new employment contract provided that the New York state law shall apply to my employment relation in Korea.  Now, my employment contract is expiring and I would like to know whether I am entitled to the severance pay under the Korean labor law.  I know my employment contract and my company’s policy do not provide the right to severance pay.  But, as I have been working in Korea for 3 years, I am wondering if the statutory rights of severance pay under the Korean labor law could be given to me.

Answer) The answer is Yes.  Expats are entitled to severance pay under the Korean labor laws.  (check here as to how the severance pay under Korean law is recognized and operates)

This answer could sound quite surprising considering the fact that the parties had previously agreed (i) the Korean labor should not apply and (ii) the severance pay should not be awarded.  How come the Korean labor law intervenes in the parties’ employment relation?  The answer lies in the provisions of the Private International Act of Korea which provides the general principles for the choice of law in Korea.

When a legal relation has certain foreign elements, the court must decide which jurisdiction’s law shall apply to interpret that legal relation.  In Korea, the Private International Act provides the general rules and principles for the governing laws of the various types of legal relations.  Specifically, the Act provides that if the employer and employee agree, the employment contract is governed by the law chosen by the parties.  But, this does not mean the parties can freely determine which law and regulations apply to their employment relation.  It is true in Korea that the party autonomy is a general principle of governing laws, but party autonomy is subject to limits imposed by the overriding public policy and mandatory rules.

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Let’s assume a creditor has a monetary claim against a debtor in Korea but the debtor refuses to pay it.  The creditor would proceed to file a lawsuit to get a judgment to collect his claim.  Unfortunately, however, the chances are that knowing the complaint was filed, the debtor would try to conceal or transfer his assets to evade from the liability under judgment.  This shows why provisional attachment is highly required to secure the judgment effectively.

Read More: Korean Lawyer Explains Debt Collections In South Korea – Overview

Provisional attachment is a judicial measure available to anyone who has a monetary claim to lock down certain assets.  It, depending on the type of court order, prevents the debtor from selling assets or enables the creditor to secure his interest in the debtor’s asset regardless of the sale by the debtor, until the court issues a judgment on the merit.

The creditor can, and usually does, seek a provisional remedy before she files a complaint on the merit.  So, this is a very powerful weapon for the creditor.  For example, as many Korean creditors do, if the creditor succeeds in putting a provisional attachment on the debtor’s bank account, the debtor would not be able to use the money and could face several penalties regarding its banking/financing transactions with the bank.  This could heavily deteriorate the ability for a small com­pany to con­duct business, which makes the debtor (more…)

It was reported that last month Apple’s South Korean office paid $945 of compensation to one of South Korean iPhone users for the breaching of privacy by the controversial iPhone user location tracking.  Here is the detail from Reuters.

By the way, some news media reported that this was a ruling from a Korean district court.  I, as a Korean lawyer, think that statement is half right and half wrong.  Basically it is true that the court issued a ruling which ordered the Apple Korea to pay $945 to the user.  But this was not a formal trial case, but a Request for a Payment Order case.  Payment order is a more convenient & simplified legal procedure for claimant to get a judgment from the court compared to a formal lawsuit.  Once a request filed, the Korean court does not question the debtor (in this case, the Apple Korea) and issue a Payment Order within 2 or 4 weeks (in certain courts, within a few days). This payment order, a sort of ruling, asks the opposing party to choose whether to admit the claim as written on the request or to make an objection.  If no objection has been raised from the opposing party within 2 weeks, then (more…)

It is reported that Mr. Matthew Deakin, the president of the HSBC Korea, said on last Wednesday that HSBC Holdings Plc had no plan to acquire a local Korean bank for now.  Last year, HSBC walked away from the deal with the Lone Star, a U.S. private equity fund, which provided HSBC the right to buy 51 percent stake of Korea Exchange Bank due to the global financial crisis and continued legal disputes surrounding the 2003 purchase of the bank by Lone Star Funds. (Here is a related previous post)

Things have changed.  The Seoul Central District Court in last November ruled the purchase legal, and as the financial markets are now stabilizing.  But Mr. Deakin, at the press conference which took place for the purpose of introducing the bank’s new Emerging Markets Index, said “right now, we have no interest in any acquisition of Korean banks”.

Here is a related news article.