SOUTH KOREA Law and Practice Contributed by: Byung Chang Lee, DR & AJU LLC
have the right to refuse to testify even where they have been served the summons, the court can impose a fine of up to KRW5 million. Additionally, if the witness repeatedly does not attend, then the court can order detention of the witness for up to seven days. The court can force the wit - ness to attend the examination hearing with the help of a police officer by issuing a detention warrant. 3. Corporate Entities, Ultimate Beneficial Owners and Shareholders 3.1 Imposing Liability for Fraud on to a Corporate Entity An individual corporate director’s or officer’s knowledge regarding fraudulent matters can be attributed to the company, provided that they acted in their capacity as a corporate director and the other party had knowledge that a corpo - rate director acted on its behalf. Conversely, if an individual director purportedly acted on a com - pany’s behalf and the other party had knowledge that they did not actually represent the company, the director’s act may not be attributed to the company. It can serve in the company’s defence that it does not want the director’s personal act to be attributed to it. In addition to punishing perpetrators for illegal acts, there are special rules in Korea regarding punishing the relevant corporation – for instance, the joint punishment provision. 3.2 Claims Against Ultimate Beneficial Owners Piercing the Corporate Veil Piercing the corporate veil is a concept that is recognised in Korea, though in extremely rare cases. In Korea, this theory is sometimes called
the doctrine of the disregard of the corporate entity, which has the same meaning. The main factors in this theory include the following: • there must be unity of interest and ownership between the two entities; • fraudulent acts by the shareholders wholly governing the corporate entity; and • this therefore creates inequitable damage to the corporate entity’s creditors. Although a company may appear to be a corpo - ration, in reality, if it is merely an individual entity of the company behind the corporation that is involved, or the company is used as a means to avoid the application of law such as tax evasion in the running of the company, then the corpo - rate form cannot be abused. Relevant Korean Supreme Court Cases The Korean Supreme Court has held that “as a stock company is a separate entity independ- ent of its shareholders, its independent legal personality is not denied in principle. However, if an individual establishes a company with the same business purpose, physical equipment, and human members while conducting business without establishing a company, the company has the form of a corporation in appearance, but is merely borrowing the form of a corporation. In exceptional cases where the company is merely a private enterprise of an individual who is com- pletely behind the legal personality, or the com - pany is used rudely as a means to avoid legal liability to the individual, we can deny the legal personality of the company and hold the individ- ual responsible” (Supreme Court 2019da293449 Decision). In another case, the Korean Supreme Court held that, if a corporate entity has its form as a company but is actually a personal entity or
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