SOUTH KOREA Law and Practice Contributed by: Hyeon-Deog Cho, Yeong-Ik Jeon, Ji-won Lim and Hakbum Ahn, Kim & Chang
Limited liability companies are not subject to these external audit and public disclosure requirements. Business Activities, Public Offerings and Bonds Other than certain limited exceptions, there are no restrictions on the types of businesses that may be conducted by all three types of entities. However, only a joint stock company is permitted to make a public offering or issue bonds or debentures. Further- more, limited liability companies may not declare or pay interim dividends, while a joint stock company or a limited company is able to take such actions in accordance with its articles of incorporation (AOI). Public Perceptions Generally, joint stock companies are viewed as having more “prestige” in Korea; most of the major domestic companies are joint stock companies. Foreign parents often set up their Korean subsidiaries as limited com- panies; in fact, a number of well-known multinational companies formed their Korean subsidiaries as limited companies. Limited liability companies, introduced in 2012, are growing in number but have not been as widely adopted by domestic companies or foreign investors. Tax Treatment All three entity types are treated the same for Korean tax purposes. However, their tax treatment may differ in other jurisdictions: for instance, for US tax purpos- es, a limited company or a limited liability company may be treated as a partnership or a branch under the so-called check-the-box rule, while a joint stock company is ineligible for such treatment. 1.3 Types or Classes of Shares and General Shareholders’ Rights A joint stock company can issue common shares and class shares. Common shares carry voting and eco- nomic rights pursuant to the terms of the KCC and/ or the AOI of the company. Class shares have special rights as set forth in the company’s AOI, which are different from the rights attached to common shares. Class shares include: • shares entitled to preferred dividends; • shares entitled to the distribution of residual assets;
• shares with or without limited voting rights; • redeemable shares; and • convertible shares. In order for a joint stock company to issue class shares, the terms and the authorised number of each class of shares must be prescribed in the company’s AOI. 1.4 Variation of Shareholders’ Rights Shareholders of a Korean joint stock company have certain statutory rights pursuant to the provisions of the KCC, including: • the right to receive dividends; • in the event of a new share issuance, the right to subscribe for new shares in proportion to the num- ber of shares held (ie, pre-emptive rights); • the right to claim and receive the distribution of residual assets; • the appraisal right for dissenting shareholders in the event of a business transfer, merger or similar corporate event; • voting rights (except for any class of shares with no or limited voting rights); • the right to propose that certain items be included on the agenda for a general meeting of the share- holders; • the right to call an extraordinary general meeting of the shareholders; and • the right to inspect the company’s books and records and receive copies thereof. Some of these rights require specific shareholding thresholds. The company’s AOI may set forth addi- tional shareholder rights based on the type of shares and the shareholding percentage. 1.5 Minimum Share Capital Requirements Generally, there is no minimum capital requirement for joint stock companies, limited companies or lim- ited liability companies, unless the business licence of such company provides for certain minimum capital requirements. The KCC requires the par value per share of a joint stock company to be at least KRW100. Therefore, a
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