Korean Business Law Chapter 5 Types of Korean Corporations 0769012 Chiseul Kim 0769040 Suh Young Yun 0769042 Seong Ah Lee

Table of Contents The KCC Jusik Hoesa (주식회사) Yuhan Hoesa (유한회사) Habmyung Hoesa (합명회사) Habja Hoesa (합자회사)

Brief Introduction Jusik hoesa & Yuhan hoesa – Two most common Korean business entity types with the most developed laws & regulations Habmyung hoesa & Habja hoesa - Partnership-type business entities less frequently used due to inflexibility and legal ambiguity under applicable laws and regulations

1. The Korean Commercial Code Main body of law governing business entities in Korea Decisions by the Supreme Court and appellate courts influence lower courts’ decisions, albeit only as reference Discussion on significant amendments to introduce new entity types certain antitakeover measures

1. Jusik Hoesa (주식회사) Type of business entity incorporated in Korea that is most similar to a corporation in the U.S. Korean laws and regulations are quite advanced with respect to this entity type Is the most common type of business entity in Korea

A. Division of Capital Stock, Limited Liability Capital stock is divided into shares Holders bear limited liability Only jusik hoesas can be listed on the Stock Market Division of the Korea Stock Exchange (KSE) or be registered on the Kosdaq Market Division of the Korea Stock Exchange (KOSDAQ). It is not dependent on any individual shareholder and can exist for an indefinite period of time serving its own business purposes.

B. Incorporation Preparation of the articles of incorporation > subscription of new shares > election of directors and auditors > registration It is required to register at the district tax office under the Value-added Tax Law Jusik hoesa must maintain a paid-in capital of 50 million (US$50,000) or more.

C. Capitalization I. Shares Capital stock is divided into shares that the jusik hoesa can issue various types of to its holders. Each class of a jusik hoesa’s capital stock must have a par value of US$0.01 or more. II. Restrictions on Transfer of Shares Shares in a jusik hoesa are freely transferable. However, the articles of incorporation may require the board of directors’ approval for any share transfer.

C. Capitalization III. Listing on the KSE A jusik hoesa listed on the KSE and its shareholders, directors, and officers are subject to various securities regulations. IV. Share repurchases and treasury shares A jusik hoesa is not permitted to repurchase its own shares. Exception: may purchase its own shares for the purposes of cancellation of such shares V. Preemptive rights and third party allocation Existing shareholders have a statutory preemptive right in case of issuance of new shares.

D. Management Structure Shareholders Board of Directors (BOD) Statutory Auditor Owners and ultimate decision-makers Elects the BOD and at least one statutory auditor Handles business operations Appoints related representative directors and officers Handles the internal auditing of financials Cannot hold a directorship or officer’s position

D. Management Structure I. Shareholders A jusik hoesa’s shareholders have the power to adopt resolutions concerning certain fundamental matters specified in the KCC and the articles of incorporation. A jusik hoesa (1) must hold an ordinary general meeting of shareholders at least once a year, and (2) may hold a special general meeting(s) of shareholders whenever necessary subject to the articles of incorporation and the KCC. Certain important matters of a jusik hoesa can be adopted only by the affirmative vote of shareholders holding at least two-thirds of the shares present at a meeting, whereby such vote represents at least one-third of the shares issued and outstanding. In general, each share in a jusik hoesa carries one vote. Minority shareholders of jusik hoesas have certain rights subject to certain shareholding thresholds. A notable fact is that Korean law does not allow squeeze-outs of minority shareholders.

D. Management Structure II. Board of Directors Has broad power and discretion to manage all matters that are reasonably necessary to achieve the business purposes of the jusik hoesa. Under the KCC, the board of directors must determine the date of shareholders’ meetings. They are required to meet at least once a year. A jusik hoesa must have one or more representative director(s). III. Statutory auditor A jusik hoesa must have at least one statutory auditor who is responsible for the internal auditing of general (including financial) affairs. A statutory auditor’s main duty is to examine documents to be submitted to the general shareholders’ meetings. But not given power to participate in the general business operations or vote at board of directors’ meetings.

E. Corporate Debenture The total outstanding balance amount of all corporate bonds of a jusik hoesa should not be in excess of four times its net asset amount on the latest balance sheet.

F. Financial Reporting, Distribution A jusik hoesa is required to prepare certain financial statements which need to be approved at the general meetings of shareholders. To declare and distribute dividends, a jusik hoesa must have: Distributable profits = net asset – amount of capital Statutory reserves = earned surplus + capital surplus Profit reserves

2. Yuhan Hoesa (유한회사) Another common type of corporation in Korea Shares several key features with the jusik hoesa Capital stock is divided into units, and holders of such units are liable only up to their respective investment amounts. Unlike a jusik hoesa, a yuhan hoesa can have only up to 50 members holding units therein, and its equity interest cannot be scrutinized though it is divided into units. Such units are less freely transferable than shares in a jusik hoesa. Yuhan hoesas have no external audit requirement.

A. Incorporation A yuhan hoesa must have and maintain a paid-in capital of \10 million (US$10,000) or more. Unlike shareholders of a jusik hoesa, a member of a yuhan hoesa cannot provide services or guarantee/credit in lieu of his or her capital contribution. A new yuhan hoesa is required to submit a business entity registration with the relevant district tax office within 20 days of its commencement of business under the Value-added Tax Law.

B. Capitalization A yuhan hoesa’s capital stock, which must be \10 million (US$10,000) or more, is divided into units and can be held by up to 50 members Such members bear limited liability to the yuhan hoesa only up to their respective shareholdings

C. Management A yuhan hoesa’s members have the power to adopt resolutions concerning certain fundamental matters specified in the KCC and the articles of incorporation. Unlike a jusik hoesa’s directors, a yuhan hoesa’s directors are not required to form a board.

D. Distribution A yuhan hoesa may distribute to its members only if it has distributable profits and such distribution is approved at a members’ meeting. In such case, it must be allocated to the members in proportion to their respective stockholdings.

Habmyung & Habja Hoesas Types of partnerships recognized under KCC. Not commonly used by foreigners or even by Korean persons and entities for reasons such as: 1) requirement to have at least one general partner with unlimited liability, 2) a unanimous voting requirement for most decisions, and 3) difficulties in transferring an interest in such entities.

3. Habmyung Hoesa (합명회사) Similar to a partnership established among only general members bearing unlimited joint liability. To establish a habmyung hoesa, two or more promoters who will become members of the habmyung hoesa need to prepare the articles of association. A decision on a material matter of a habyung hoesa requires all members’ unanimous approval.

4. Habja Hoesa (합자회사) Like a limited partnership in the U.S., a habja hoesa has one or more general partners with unlimited liability and one or more limited partners with limited liability. Limited partners do not have rights to conduct the business operations of the habja hoesa Limited partner cannot provide services or credit in lieu of a capital contribution

Conclusion Jusik hoesa and yuhan hoesa are the two prevalent forms of business entities in Korea. Jusik hoesa is the most commonly used entity type with advanced features. Habmyung hoesa and habja hoesa, partnership-type entities in Korea, are not used frequently. One of the reasons for their unpopularity may be unclear laws and regulations governing such partnership-type entities.

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