SOUTH KOREA LAW AND PRACTICE Contributed by: Tehyok Daniel Yi, Gun Kim, Kyu Hyun Kim, Sun Hee Kim, Yong Whan Choi, Yong Min Lee, Jung Woo Lee and Hyeon Jeong, Yulchon LLC
proceedings sparked public criticism that PE funds prioritise investment recovery over sustainable busi - ness management. This has led to legislative propos - als aimed at tightening PE regulations, which have in turn raised concerns among limited partners, signal - ling that Korea’s regulatory and market environment for private equity investment may become more strin - gent in the coming years.
However, a proposed mandatory tender offer rule, still under discussion, could require acquirers of 25% or more of a listed company’s shares to make a man - datory tender offer to obtain certain minimum share - holdings of a listed company in addition to acquiring sale shares through a private sale. This rule has not yet been codified but could affect future transaction structures. Key Considerations for Foreign Investors Foreign investors should consider the following fac - tors when selecting a transaction structure. • Tax structuring: careful planning can optimise tax efficiency for the investor’s specific circumstances. • FIPA eligibility: confirming eligibility under the FIPA can unlock potential tax incentives and regulatory benefits. • Foreign exchange compliance: where the FIPA is not applicable, compliance with the FETA, which mandates reporting based on a transaction’s nature and structure, is crucial. Failure to report could restrict outbound currency remittance. • Sector-specific restrictions: certain industries limit foreign ownership or impose additional regulations, directly impacting transaction structure choices. • Regulatory approvals: specific sectors, particularly finance, require regulatory approval for foreign acquisitions, with standards differing from those for domestic investors, especially when significant stakes are involved. Control Acquisitions v Minority Investments Share transfers are preferred for control buyouts, while JVs and share subscriptions are common for minority investments. These structures suit foreign investors seeking strategic partnerships or limited ownership for market entry. Asset and business transfers are also commonly used for broader corporate restructuring or reorganisation. 3.2 Regulation of Domestic M&A Transactions Additional Regulatory Approvals Foreign investors considering M&A transactions in South Korea should be aware of regulatory review and reporting requirements beyond FDI regulations, including antitrust and securities filings. This includes the following.
3. Mergers and Acquisitions 3.1 Transaction Structures
Common Transaction Structures in South Korea In South Korea, common M&A structures include: • share transfers; • business transfers; • mergers or consolidations; • asset transfers; • joint ventures (JVs); • share subscriptions; and • other forms like share swaps and corporate splits. According to the Korea Fair Trade Commission’s (KFTC) 2024 data, among the transactions for which merger filing combination reports have been made to the KFTC, share transfers, including purchases and subscriptions, accounted for 39.5% of filings, JV for - mations for 19.4%, mergers for 16.4%, and business transfers for 11.7%. Share transfers are the most widely used structure for acquisitions, with mergers more common among affiliated companies. In transactions involving the acquisition of control over listed and non-listed companies, there is no significant structural difference. However, for listed companies, a mandatory tender offer system has been under dis - cussion since 2022, which would require the buyer to make an offer to purchase shares from all other share - holders if acquiring more than 25% of the company’s shares. While the government has recently revived efforts to push this forward, the legal amendments
and implementation are yet to occur. Public v Private Company Acquisitions
There are no major structural differences between acquiring control of public and private companies.
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