Corporation
Set forth below is a brief summary of certain provisions of the Commercial Code of Korea relating to corporations (chusik hoesa) and certain related legislation, all as currently in effect.
General
Under the Commercial Code, the minimum equity amount for incorporating a company in Korea is 50 Million Won. It should be noted that when more than one foreign investor make investment together, the foregoing minimum amount is applicable to each such foreign investor.
The authorized capital of a company must be determined for inclusion in the articles of incorporation. Under Korean law, the authorized capital may be up to 4 times the amount of the share capital at the time of the incorporation of a company.
Each share subscribed is to have an assigned par value. The minimum par value is 100 Won per share.
Under the Commercial Code, a company must have 3 or more directors and 1 statutory auditor, provided that a company may have 1 or 2 directors if and so long as its capital amount is less than 500 Million Won.
Voting Rights
Under the Commercial Code, a holder of common shares in a corporation is entitled to one vote per share, except that (i) shares held by the corporation and (ii) shares held by a corporate shareholder, more than one-tenth of whose outstanding shares is directly or indirectly owned by the corporation, cannot vote.
Except as otherwise provided by law or by the articles of incorporation, a resolution can be adopted at a general meeting of shareholders if approval is obtainable from holders of at least a majority of the issued and outstanding shares of the corporation having voting rights present or represented at such meeting and such majority also represents at least one-fourth of the issued and outstanding shares of the corporation having voting rights. Under the Commercial Code, for the purpose of electing statutory auditors, a shareholder holding more than three percent of the total shares having voting rights may exercise not more than three percent of the total voting rights.
The Commercial Code also provides that, in order to amend the articles of incorporation and in certain other instances (including removal of a director or a statutory auditor, dissolution, merger or consolidation, or transfer of the whole or a significant part of the business, acquisition of the whole of the business of any other company or issuance of new shares at a price lower than their par value), an approval from holders of at least two-thirds of those shares present or represented at the meeting is required, provided that such super-majority also represents at least one-third of the total issued and outstanding shares of the corporation having voting rights.
Pursuant to the Commercial Code, in certain limited circumstances (including the transfer of the whole or any significant part of the business or the merger or consolidation of the corporation with another company), dissenting holders of shares have the right to require the corporation to purchase their shares. In order to be entitled to exercise such right, the dissenting shareholders must submit their intention to dissent in writing to the corporation prior to the general meeting of shareholders. Within 20 days after the date on which the relevant resolution is passed at such meeting, such dissenting shareholders must request the corporation in writing to purchase their Shares. The corporation is obligated to purchase the shares of dissenting shareholders within one month after the end of the request period at a price to be determined by negotiation between the dissenting shareholders and the corporation. If a price cannot be agreed upon through such negotiation, the dissenting shareholder may request a court to determine the purchase price.
A shareholder may be represented at a general meeting by a proxy. The proxy must deliver to the corporation prior to the commencement of the general meeting written evidence of his appointment as proxy.
Dividends
Dividends are distributed to shareholders in proportion to the number of shares owned, after approval by the shareholders at an annual general meeting.
Annual dividends may be distributed either in cash or in shares. The Commercial Code provides that each share (of the same class) of a company must receive equal dividend treatment.
Provided that it is stated in the articles of incorporation, interim dividends may be paid once during a fiscal year.
The Commercial Code prohibits a company from distributing profits by way of annual dividend unless either it has set aside in its legal reserve an amount equal to at least one-tenth of the amount of the relevant annual cash dividend or the legal reserve is not less than one-half of its stated capital. The Commercial Code permits a company to distribute profits by way of annual dividend out of the excess of its net assets, on a non-consolidated basis, over the aggregate of (i) its stated capital, (ii) the aggregate amount of capital surplus reserves and legal reserve which were accumulated up to the end of the relevant dividend period and (iii) the legal reserve to be set aside in respect of the dividend concerned.
Neither of these reserves is available for payment of annual dividends, but may be transferred to stated capital by resolution of the board of directors or used to offset an accumulated deficit through appropriate action of shareholders.
Free Distribution of Shares
In addition to permitting dividends in the form of shares to be paid out of retained or current earnings, the Commercial Code permits the board of directors of a company to distribute to shareholders in the form of a free share distribution an amount transferred from any capital surplus reserve or the legal reserve to stated capital. Such shares must be distributed to shareholders in proportion to the number of shares owned by them.
Pre-emptive Rights and Issues of Additional Shares
With certain exceptions, the Commercial Code and the articles of incorporation give shareholders the right to subscribe new shares in proportion to their existing shareholdings.
Authorized but unissued shares may be issued at such times and, unless otherwise provided in the Commercial Code or the articles of incorporation, upon such terms as the board of directors may determine. The new shares must be offered on uniform terms to all shareholders who have pre-emptive rights and who are on the register as at the relevant record date.
The board of directors can determine how to distribute any shares as to which pre-emptive rights are not exercised or any fractions of shares.
General Meetings of Shareholders
Under the Commercial Code, the ordinary general meeting of shareholders is held within three months after the end of each fiscal year and, subject to board resolution or court approval, an extraordinary general meetings of shareholders may be held as necessary or at the request of holders of an aggregate of 3 per cent or more of the outstanding shares, or at the request of the company’s statutory auditor.
Annual Report
At least one week before the ordinary general meeting of shareholders, a company’s annual report must be made available at the principal office of the company and at all its branch offices for inspection by shareholders.
Transfer of Shares
Under the Commercial Code, the transfer of shares is effected by delivery of share certificates but, in order to assert rights of shareholders against a company, the transferee must have its name and address registered on the company’s register of shareholders.
Liquidation Rights
In the event of the liquidation of a company, the assets remaining after payment of all debts, liquidation expenses and taxes will be distributed among the shareholders in proportion to the respective number of shares which they hold.
If you have any inquiries with regard to corporate and securities laws of Korea, please contact Mr. Keun Dong Lee (leekd@sigonglaw.com), a Korea-licensed attorney at Sigong Law P.C. (www.sigonglaw.com).