SOUTH KOREA Law and Practice Contributed by: Ho Joon Moon, Sung Min Kim, Allen Hyungi Ryu and Joon Sung Hong, Lee & Ko
5.4 Legal Formation and Capital Requirements
amount exceeding 5% of its equity (or 2.5% for Large Corporations), or when a KOSDAQ-listed company invests an amount exceeding 10% of its equity (or 5% for Large Corporations), the company must disclose this investment on the date of the decision to partici - pate in the JV (ie, the board of directors’ approval). Furthermore, when a company that belongs to a business group subject to disclosure requirements (with total assets of KRW5 trillion or more) invests an amount that meets or exceeds the lower of (i) KRW10 billion, or (ii) 5% of the larger of the company’s total equity or stated capital (with a minimum threshold of KRW500 million) as a JV participant, it must disclose this investment within seven days (in the case of an unlisted company) or three days (in the case of a listed company) from the date of the decision to participate in the JV. 5.3 Conditions Precedent, Material Adverse Change and Force Majeure The conditions precedent to obligation to subscribe for shares typically envisaged in JV agreements include the following: • to perform and comply with all covenants, agree - ments and conditions required by the JV agree - ments; • representations and warranties to be true and cor - rect as of the closing date; • no order, injunction, decision or ruling that disal - lows, challenges, enjoins, prohibits or imposes any damages, penalties or restrictions on the closing; and • all required government approvals, authorisa - tions, consents, approvals and waivers have been obtained (this clause is particularly important when there is a foreign JV partner in the transaction). Generally, the conditions precedent apply to all of the joint-venture parties. While material adverse change clauses are occasion - ally discussed, the force majeure clauses are rarely negotiated in JV transactions, except in transactions involving contribution of assets by one JV partner.
As previously noted, chusik hoesa is the most com - monly used form of JV vehicle in South Korea; as such, the issues relating to the setting up of a JV vehicle as a chusik hoesa are detailed here. A JV vehicle can be: • incorporated by one of the JV participants (usu - ally the South Korean participant), with the other JV participants(s) subsequently joining the JV vehicle as shareholder(s), and where the other JV participant(s) – to the extent that they acquire 20% or more of shares in the JV vehicle – will be responsible for the business combination report; or • incorporated jointly by the JV participants, where the largest shareholder of the JV vehicle will be responsible for the business combination report. If any JV participant is a large company with world - wide assets or annual revenue of KRW2 trillion or more, the business combination report clearance will be required prior to: • acquisition of shares in the JV vehicle by that JV participant (in the case of the first point in the ear - lier part of this section); or • incorporation of the JV vehicle (in the case of the second point in the earlier part of this section). For a foreign JV participant to acquire shares in the JV vehicle, it must submit a foreign investment filing before it can make payment of the capital contribu - tion. Upon receipt of the approval for the foreign invest - ment and certain basic procedures for company incorporation (including the adoption of articles of incorporation, and designation of directors and the representative director), the JV may be established, and the approved amount of foreign investment can be paid into the JV. After completion of the foregoing, the JV and its offic - ers (ie, the directors, statutory auditor – if any – and representative director) will be registered with the local district court in the jurisdiction where the head office is
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