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
Key Considerations for Foreign Investors Foreign investors should consider the following when selecting a corporate structure. • Governance and control: a jusik hoesa provides a more formal governance framework, suitable for investors needing clear oversight mechanisms and roles. • Operational flexibility: a yuhan hoesa provides flex - ibility for smaller or family-owned investments but is less ideal for larger-scale operations requiring sophisticated capital options. • Capital structure: a jusik hoesa’s ability to issue various securities with conversion/redemption rights allows greater flexibility for financing, while a yuhan hoesa’s restrictions could affect capital- raising strategies. Selecting between a jusik hoesa and a yuhan hoesa depends on an investor’s priorities for governance, operational complexity and capital flexibility, enabling foreign investors to align the entity structure with investment goals. 4.2 Relationship Between Companies and Minority Investors Under the KCC, except where non-equitable treat - ment is permitted, all shareholders must be treated equitably in proportion to their shareholding, based on the principle of shareholder equality. Any agree - ment granting preferential rights or benefits to specific shareholders, without justification, is generally deemed invalid. Major corporate actions such as mergers or amendments to the articles of incorporation require enhanced voting thresholds, ensuring minority input on significant decisions. Dissenting shareholders are also granted appraisal rights in cases involving merg - ers, spin-offs, comprehensive share swaps or trans - fers of substantial business assets, allowing them to seek fair value for their shares. In addition, the 2025 amendments to the KCC signifi - cantly strengthened minority shareholder rights. Most notably, the directors’ duty of loyalty was expanded to cover all shareholders, marking a fundamental shift in corporate governance for Korean companies. Further, listed companies with total assets of KRW2 trillion or more will be required to:
• Antitrust and competition review: acquiring the shares or business of a South Korean company may require a merger filing with the Korea Fair Trade Commission (KFTC) under the Monopoly Regulation and Fair Trade Act (MRFTA) (see 6. Anti- trust/Competition ). Merger filings are mandatory if the transaction meets specific asset or revenue thresholds, aiming to prevent anti-competitive mar - ket concentration. • Securities reporting for public companies: for public company investments, securities regulations mandate disclosure filings based on sharehold - ing thresholds. Investors must file a substantial shareholding report at the 5% threshold and an additional report at 10% ownership. These require - ments promote transparency in shareholder activity for publicly listed companies. 4. Corporate Governance and Disclosure/Reporting 4.1 Corporate Governance Framework Overview The two primary legal structures for corporate entities are a joint stock company ( jusik hoesa ) and a limited company ( yuhan hoesa ). Each has its own distinct governance requirements as follows. • Joint stock company ( jusik hoesa ): this structure is most common for larger businesses and is required for all public companies. It mandates a board of directors, an internal auditor or audit committee and shareholder meetings. The board oversees major decisions, while a representative director manages daily operations. Shareholders enjoy lim - ited liability, and the company has flexibility in issu - ing stock options, convertible shares and bonds, which are key advantages for raising capital. • Limited company ( yuhan hoesa ): typically used by smaller or closely held companies, this structure offers operational flexibility without requiring a board or internal auditor. However, it cannot issue stock options, convertible shares or bonds, which limits financing options. Like a jusik hoesa , share- holders’ liability is limited, but governance require - ments are less complex, making it suitable for smaller entities.
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