In a recent case involving indemnity action (2004Na64267) filed by Korea Credit Guarantee Fund (KCGF), the Seoul High Court made a ruling to the effect that directors?joint liability may only be applicable to those directors who have actually or likely to have controlled or participated in management of a company, thereby reversing the lower court’s decision.
KCGF had provided its guarantee for a company A which obtained loans from a bank, and, after the company A could not repay the loan principal to the bank, KCGF had to make the loan payment as a guarantor and subsequently sued the company A and its directors for indemnity, and the Seoul District Court rendered its judgment in favor of KCGF.
However, the Seoul High Court, in reviewing the above case that was later appealed, stated that a son of the representative director of the company A, though a director registered in the company’s commercial registry, could not be jointly held liable for the indemnity amount because he was not actually involved in the management of the company (perhaps lending his name to the company for a registered director position). So, although, at the time of providing its guarantee to the bank, KCGF had directors of the company A provide to it the joint guarantees for the loaned amount, KCGF could only enforce the indemnity claim against the directors who were actually involved in the decisions of the company A.
Arbitration is defined as a process in which private disputes are resolved swiftly and privately through arbitrator(s) to whom the parties agree to refer their disputes avoiding rather prolonged court procedures. An issue arises as to whether an elective or optional arbitration clause, i.e., a clause gives the parties choices to resolve the matter via either court proceedings or arbitration proceedings, will be regarded as valid and honored as such by Korean courts.
At first, Korea has seen a larger number of lower trial court precedents adopting the view that a ‘waiver of the right to trial’ was necessary. However, some lower court precedents have embraced the view that optional arbitration clauses may be also valid.
Eventually, the Korean Supreme Court (the “Court”) declared a somewhat peculiar ruling (August 22, 2003 declared, 2003Da318). According to the Court, optional arbitration clauses, in general, were possibly to be viewed as valid in light of totality of the relevant facts. The Court ruled further that if an elective clause, which allows the disputes to be resolved either through litigation or arbitration, allows one party to request the arbitration proceedings and the other party takes part in the proceedings without any objection, then the elective clause is considered valid as such, and that if a party objects to arbitration as the method of dispute resolution under the elective clause, such a clause will not be considered valid.
The above opinion, as well as subsequent lower trial court opinions following the ruling, has since created much debate due to the fact that, in spite of recognizing the possible validity of the selective arbitration clause, the opinion refrains from fully endorsing selective clauses by effectively stating that, depending on the specific language of the applicable provision, the elective clause may be invalidated.
In view of the above court rulings, unfortunately, uncertainty still remains in determining whether such an elective arbitration clause will be upheld as valid and binding on the parties. Therefore, where parties have agreed to resolve disputes via arbitration proceedings that are to be implemented or executed in Korea, the parties should bear in mind that the provision should be clear and unambiguous as to whether such resolution is to be via arbitration only, eliminating the alternatives of court proceedings.
If you are a director of a company and have neglected to perform your duty willfully or gross negligence, causing damages to a third party, the period of statute of limitations within which an aggrieved party could bring a claim is 10 years. This is what the Supreme Court of Korea ruled in a damage compensation case brought against 2 former directors of Daewoo Electronics (2004Da63354, ruled on Dec. 22, 2006), confirming the judgment of the lower courts that had awarded 2 billion Won in damages to Woori Bank.
Woori Bank made some 40 billion Won and 30 Million USD loans to Daewoo Electronics during a period from 1997 to 1998 based on the company’s financial statements that included falsified earnings amounting to some 1.7 trillion Won and, after suffering damages from the loans made, filed a lawsuit against the then executives of the company.
The lawsuit by Woori Bank was mainly based on Article 401 of the Commercial Act of Korea which provides for the joint and several liabilities of directors to third person if they have neglected to perform their duties willfully or by gross negligence.
The Supreme Court stated in the judgment that the liability of directors to third persons under Article 401 of the Commercial Act is considered a special responsibility intended to protect third persons, and so the 10-year period of statute of limitation applicable to monetary and other claims (Paragraph 1 of Article 162 of the Civil Act) should apply.
The defendants had argued that a 3-year period of the statute of limitations under Paragraph 1 of Article 766 of the Civil Act should apply. Paragraph 1 of Article 766 of the Civil Act states that the right to claim for damages resulting from an unlawful act shall lapse if not exercised within 3 years commencing from the dates on which the injured party becomes aware of such damages and of the identity of the person who caused it.
The Supreme Court rejected the argument of the defendants stating that considering the importance of stock corporations in today’s economy and the role of directors in operations of a stock company, third persons must be protected from any willful or gross negligent acts of directors. And, therefore, the usual period of 10-year statute of limitations under the Civil Act must be applied to such liabilities of directors, and that the short 3-year period of statute of limitation provided under the Civil Act as an exception to the usual 10-year rule cannot be relied upon in this case.
The Supreme Court of Korea recently ruled that an agreement between a director and a company providing for dismissal compensation in case of the director being dismissed is void in the absence of a shareholder resolution.
A former representative director of Bridge Securities Co. filed a lawsuit with the Seoul Central District Court against the former employer for payment of dismissal compensation amounting to some USD 700,000.00. The claim of the former representative director was based on the employment agreement between the former representative director and the company, which specified, among other things, that in the event of the employee being involuntarily dismissed, the company was required to pay him certain dismissal compensation.
The Seoul Central District Court ruled that the employee was not entitled to the compensation for the dismissal and the Seoul High Court affirmed the decision. The former representative director appealed the ruling of the lower courts, but the Supreme Court also concurred with the decision of the lower courts as it denied the appeal filed by the former representative director (Case 2004da49570).
In its ruling, the Supreme Court referred to Article 388 of the Commercial Act that provides that if the amount of remuneration to be received by directors has not been fixed by the articles of incorporation, it shall be determined by the resolution of a general meeting of shareholders. The Supreme Court stated that Article 388 of the Commercial Act is also applicable to the dismissal compensation matters, and, therefore, unless a specific amount is provided for in the relevant articles of incorporation or there exists a shareholder resolution approving the relevant dismissal compensation, the employer is not obligated to pay the dismissal compensation amount specified in the employment agreement.
The Supreme Court further stated that since a company is free to dismiss a director with or without a just cause pursuant to a special resolution of shareholders under the Commercial Act, recognition of director dismissal compensation in an employment agreement could interfere with, especially if the compensation amount is large, the free right to dismissal of directors by shareholders, leading to the restriction of stipulated functions of shareholder meetings under the Commercial Act.
Oftentimes, a foreign direct investment under the Foreign Investment Promotion Act of Korea via share acquisition is accompanied by the relevant foreign investor’s participation in the board of directors of the Korean company in which the foreign investment is made. And, as for the foreign individuals becoming directors of a Korean company, it becomes natural for them to wonder about the possibility of being exposed to any liability while serving as director of a Korean corporation. So we take a look briefly at duties and liabilities of directors under Korean law.
Under Korean law, the relationship between a company and a director(s) is that of a fiduciary relationship where the company has entrusted the director with the management of affairs and the director(s) has consented thereto. Based on such relationship, a director is required to manage the affairs entrusted to him with the care of a good manager (Paragraph 2 of Article 382 of the Commercial Act and Article 681 of the Civil Act). A director is also required to perform their duties faithfully for the good of the company in accordance with laws, subordinate statutes, and the articles of incorporation (Article 382-3 of the Commercial Act).
So if a director violates the above-noted duty of care as a good manager and duty to faithfully perform for the interests of company, the director may be held liable to the company or even to a third party under certain circumstances, and be required to pay damages.
More specifically, under Article 399 of the Commercial Act, a director would be held liable to the company for damages if (s)he acted in violation of any laws or of the articles of incorporation, or neglected to perform his (or her) duties as a director. If any act referred to in the foregoing sentence were done in accordance with the resolution of the board of directors, the directors who assented to such resolution would be held jointly and severally liable. As a related matter, even if a director voiced his dissenting opinion in the meeting, but any record of the dissenting opinion was not entered in the minutes thereof, then the director may be presumed to have assented to the said resolution.
In addition, under Article 401 of the Commercial Act, a director would be held liable to a third party if (s)he neglected to perform his duties willfully or by gross negligence causing damages to the third party. As with director’s liabilities to a company, if any act referred to in the foregoing sentence were done in accordance with the resolution of the board of directors, the directors who assented to such resolution would be held jointly and severally liable, as well as director(s) having voiced his dissenting opinion but not having any record of the said opinion in the relevant minutes.
It is noted, however, that as with the US common laws, a director faced with a damage compensation lawsuit (e.g., breach of duty of care as a good manager) could claim as a defense that the director exercised his or her business judgment, and if a court accepts such defense, then the director could be exculpated from liability unless the party bringing the lawsuit (e.g., shareholder) proves otherwise.
In addition, looking at the potential liabilities of a director as noted above, one could make a case that a director should be held liable only to a company when the director has not properly discharged any of the required duties, but not to a third party, since the director acts pursuant to the mandate issued by the relevant company. Korean courts also recognize this foregoing point, and so award damages to a third party in limited cases where a director acted irrationally to a significant extent and/or discharged any of the required duties unreasonably so as to cause damages to a third party.
Apart from civil liability towards the relevant company or a third party, it is noted that a director could also be criminally liable for breach of trust cases.
Under Article 355 of the Criminal Act, the offense of breach of trust is applicable to a person, who, administering another's business, obtains pecuniary advantage or causes a third person to do so from another in violation of one’s duty, thereby causing loss to such person, and the offense is punishable by imprisonment for not more than five years or by a fine not exceeding fifteen million won. Korean courts are especially known to recognize the breach of trust offense for cases where financial institutions have unreasonably made loan arrangements with other parties.
We lastly note that under current Korean law, there is no ceiling on directors’ liabilities, and, as such, the scope of directors’ liabilities is unlimited. Further, there are no laws in Korea that require companies to obtain insurance for directors’ potential liabilities, so a company has complete freedom as to whether it should obtain the said insurance.
Recently, because of a much more active movement by civic organizations in Korea for protection of minority shareholders’ rights, there have been some actual litigation with respect to directors’ liabilities, and the cases in which courts have acknowledged liabilities of directors are increasing. Also, with introduction of securities-class action system that is now applicable to all publicly listed companies in Korea, we will likely see more of lawsuits pertaining to directors’ liabilities.
In view of the above-noted recent developments, the number of companies obtaining directors and officers liability insurance (D&O Insurance) for the purpose of protecting directors and encouraging directors to make decisions without fear of liability has been increasing. But still the number of companies which have obtained the D&O insurance is still far below (under 40% for public corporations, though most public companies with assets of at least 2 trillion won have obtained the said insurance) when compared to the advanced nations.
We set forth a brief description of each form of a company that is available under the Commercial Code of Korea. While Korean companies today commonly utilize the form of a corporation (Chusik Hoesa, the most common type of a company in Korea) or a limited liability company (Yuhan Hoesa), taking advantage of limited liability associated with those forms, there are fundamental differences between those two forms, which we also note below.
(1) Partnership (Hapmyong Hoesa)
Members consist of only those with unlimited (direct, joint and several, unlimited) liabilities. Every member has the authority to represent the company unless the articles of incorporation of the company provides for a member who has such authority. Each member will be jointly liable to repay the debts of the company in case the company may not fully repay its debts by use of the company’s corporate assets. Transfer of ownership interest is limited (requires unanimous consent of all members).
(2) Limited Partnership (Hapja Hoesa)
Members consist of those with unlimited liabilities (unlimited members) and those with limited liabilities (limited members) (dual structure). Unlimited members have the authority to execute the corporate affairs of the company and also will be liable to the liabilities of the company, while limited members participate in the company only through capital investment and do not have the right to execute the company business or to represent the company. Their liability will be limited by the amount of their capital investment to the company.
(3) Corporation (Stock Company or Chusik Hoesa)
Shareholders of a corporation have limited liabilities, being liable only to the extent of their capital investment in the corporation made through the acquisition of its stock. The capital of a corporation is a normal sum of the total face value (par value) of stock issued by the corporation. The stock of a corporation may be freely transferable; however, the transfer of stock may be subject to the approval of the board of directors in accordance with its articles of incorporation. By its nature, a corporation cannot increase the liabilities on its stockholders, neither by a provision in the articles of incorporation nor by a decision of the general meeting of stockholders.
(4) Limited Liabilities Company (Yuhan Hoesa)
A limited liabilities company consists of members with limited liabilities (the number of employees must be not more than 50), who are responsible only to the extent of their capital investment. Since there are many restrictions on this type of company, including the ceiling on the maximum number of members at 50, it is rather a suitable form for a small and medium business to assume.
We provide the following explanations on the differences between a chusik hoesa and a yuhan hoesa:
a. Total number of shareholders (members) of yuhan hoesa may not exceed 50, while there is no such restriction for chusik hoesa.
b. Board of directors is not required for yuhan hoesa, while it is a requirement for chusik hoesa.
c. Each director of yuhan hoesa has the authority to represent the company unless the articles of incorporation of the company designates a specific director who has the authority to represent the company (equivalent to the representative director of chusik hoesa), while chusik hoesa must have at least one representative director elected from among the members of the Board of Directors.
d. Yuhan hoesa may be organized without the statutory auditor (unless the articles of incorporation of the company require a statutory auditor to be appointed), while appointment of a statutory auditor is a requirement for chusik hoesa.
e. Issue of additional shares must be approved at the shareholders (members) meeting of yuhan hoesa in the form of an amendment to the articles of incorporation, while such issue may be approved at the Board of Directors of chusik hoesa unless an increase in the authorized capital is required for issue of such additional shares (the concept of the authorized capital is not applicable to yuhan hoesa).
f. Yuhan hoesa may not issue corporate debenture or bond (borrowing of cash loans is allowed), while chusik hoesa may raise fund through issue of corporate debenture as well as through cash loans.
g. Transfer of shares of yuhan hoesa must always be approved by the shareholders (members) meeting by a 3/4 approval, while transfer of shares of chusik hoesa may be free unless the articles of incorporation of chusik hoesa requires an advance approval of the Board of Directors for transfer of shares.
In Korea, unfair trade practices and anti-competitive behavior of enterprises are regulated under Monopoly Regulation and Fair Trade Act (“MRFTA”), which was enacted on December 31, 1980 and which have underwent several revisions since its enactment. Article 1 of MRFTA sets forth the purpose of the Act as preventing the abuse of market dominance and excessive concentration of economic power in enterprises and regulating undue concerted acts and unfair trade practices, thereby promoting fair and free competition.
In principle, MRFTA applies to transactions between enterprises or those transactions where a party thereto is an enterprise. However, such sectors as electricity, gas, water, public health, and small-and-medium enterprises are regulated under separate laws and regulations since they are highly public in nature or require different policy considerations by government. In addition, exercise of rights pertaining to intellectual properties is regulated under such acts as Copyright Act, Patent Act, and Trademark Act, etc.; however, to the extent a certain intellectual property right holder abuses his or her rights to obtain unfair trade benefits in a transaction (e.g., designating the source of purchasing raw materials or parts when granting licenses to other enterprises), MRFTA shall be applicable to regulate such unfair practice.
The Korea Fair Trade Commission (“KFTC”) is Korea’s competition agency which is in charge of developing competition policy and enforcing MRFTA. For KFTC, cartel, M&As, and abuse of dominance in market are major targets of law enforcement. KFTC also does not seem to shy away from applying MRFTA to foreign companies operating outside of Korea when their actions cause, or have potential to cause, anti-competitive effects in Korea. More specifically, marking for the first time to apply Korea’s anti-trust laws extraterritorially, KFTC issued last March 20, 2002, an order imposing a surcharge of 11,242 Million Won on six graphite electrode manufacturers from the US, Germany and Japan that participated in the international cartel of graphite electrodes.
Below are some important provisions under MRFTA and KFTC’s role in enforcing them.
1. Prohibition Against the Abuse of Market-dominant Positions
Under MRFTA, any company with annual sales revenue of at least 1 Billion Won whose market share is more than fifty (50) percent is presumed as a market-dominant enterprise. Or, if and when combined market share of less than three (3) enterprises is above seventy-five (75) percent, those enterprises are also presumed to hold market-dominant positions, provided, however, that any enterprise with market share of less than ten (10) percent shall not be counted in.
If any market-dominant enterprise commits any of the acts listed below, KFTC may order corrective measures and/or impose upon the said enterprise a surcharge not exceeding three (3) percent of the turnover.
a) Unreasonably fix, maintain, or alter the price of a good or service fees;
b) Unreasonably control the sale of goods or the rendering of services;
c) Unreasonably interfere in the business activities of other enterprises;
d) Unreasonably interfere in the entry of new competitors; or
e) Engage in unreasonable transaction to eliminate competitors or harm interests of consumers.
It used to be that KFTC regularly issued a list of enterprises with market-dominant positions, but now the market-dominant enterprises are determined ex post facto, taking into account such factors as market share, existence of market barrier for new entrants, size of competitors, etc.
2. Restrictions on Business Combinations and Economic Concentration
MRFTA prohibits a business combination which would substantially restrict competition in a given sector, unless efficiency-enhancing effects are deemed difficult to achieve without the proposed combination, or the business combination involves a company whose revitalization would be impossible without the combination.
As a related matter, MRFTA requires companies of a certain scale (total asset or revenue amount, inclusive of all affiliates, exceeding 100 Billion Won) to make a report on the following business combination to KFTC.
a) Acquisition of shares of another company (20% or more, 15% for listed corporations);
b) Officers’ concurrent hold of positions (limited to a Large Enterprise – to be explained in the next section);
c) Mergers and acquisitions;
d) Taking over or leasing the whole or a substantial part of the business, and undertaking the management of another company; or
e) A company subscribing to 20% or more of the shares of a new company to be established.
3. Designation of Large Enterprises
Under MRFTA, as part of curtailing excessive economic concentration of power, any company belonging to a “large business enterprise” is allowed to acquire or own stocks of other companies, but such investment is limited by the rule that the total investment amount cannot exceed an amount representing forty percent (40%) of the investing company’s net assets. These companies are also banned from making mutual equity investments or providing mutual debt guarantees.
As a result of the recent amendment of the MRFTA, which took effect on April 13, 2007, the number of companies subject to the investment limit by KFTC has been reduced to 27 large affiliates in seven major business groups, including Samsung Electronics Co. in the Samsung Group and Hyundai Motor Co. in the Hyundai Motor Group. Last year, 343 affiliates in 14 business groups were subject to the investment restriction, adopted in 2001 to prevent top conglomerates from reckless business expansion.
Before the revision, every affiliate of a business group with assts of 6 trillion won ($6.4 billion) or more was banned from investing more than 25 percent of its assets in other companies.
Now, under the revised fair trade laws, the threshold has been raised to 10 trillion won, and the ceiling has been raised to 40 percent of net assets. In addition, the target of the restriction is narrowed to large affiliates with minimum assets of 2 trillion won. For example, LG International Corp. will not be subject to the investment limit because its assets are less than 2 trillion won, though LG business group to which the company belongs is subject to the investment limit because the assets of the business group as a whole exceed 10 trillion won.
Consequently, LG, Kumho Asiana, Hanwha and Doosan business groups will be excluded from the conglomerates subject to the investment restriction because they do not have affiliates with at least 2 trillion won in assets, except for holding companies that are exempt from the investment cap.
Other acts that are regulated under MRFTA include activities of holding companies, unfair concerted acts, unfair trade practices, and unfair practices in execution of international contracts, etc.
If you have any inquiries on Korean competition or anti-trust laws, please contact Hoon Lee (hoonlee@sigonglaw.com.), chief editor of this Korealaw.com and senior foreign attorney at Sigong Law P.C.
In principle, any gambling activities (or speculative activities) are prohibited in Korea. Article 246 of the Criminal Act punishes a person who gambles or bets for the purpose of gaining property by a fine of not more than five million won or a minor fine. Article 247 of Criminal Act prohibits opening of a gambling place for a profit and punishes a person who violates this provision by imprisonment of not more than three years or by a fine not exceeding twenty million won.
However, Korea has allowed certain gambling activities to be operated in the nation under restricted circumstances (e.g., promotion of public welfare, tourism) pursuant to special laws enacted.
For example:
a. Casinos
Casinos are being separately regulated between foreigners and Korean citizens.
Under the Special Act on the Assistance to the Development of Abandoned Mine Areas, Gangwon-land casino located in abandoned mining district in Gangwon province is presently the only casino that Korean citizens may enter. Obviously, this casino is located in a very remote countryside to restrict access by Korean individuals, and there is no casino located in an urban area.
In contrast, the Tourism Promotion Act permits qualified domestic hotels to operate casinos which only foreign nationals are allowed to enter. At present, casinos for foreigners are actively in operation in Seoul, Incheon and Jaeju Island and are supervised under the Ministry of Culture and Tourism.
b. Lotteries
There are two different types of lottery that customers may choose, which are (i) Lotto and (ii) ToTo, which is a type of sports lottery.
The operations of selling lottery tickets are regulated under the Lottery and Lottery Fund Act and are under the jurisdiction of Lottery Commission under the office of the Prime Minister.
Also, the National Sports Promotion Act (the “NSPA”) regulates sale of ToTo tickets that are presently issued by Seoul Olympic Sports Promotion Foundation, which is a public corporation founded pursuant to the NSPA.
c. Racing
Horse racing is permitted under the Korean Horse Affairs Association Act and is under the jurisdiction of the Ministry of Agriculture and Forestry.
Also, cycling and motor boat racing is regulated under the Cycling and Motor-Boat Racing Act, and is under the jurisdiction of the Ministry of Culture and Tourism.
d. Online Gambling
Korea does not yet have laws relevant to online gambling operations, and, as such, no one may legitimately operate online gambling in Korea. Nevertheless, there are unlawful operations of online gambling. The National Policy Agency has established Online Criminal Activity Investigation Team and intensified control of any unlawful activities online.
e. Slot machines
Any operation of slot machines outside permitted casinos is illegal.
f. Skill gaming
Any skill gaming that is too conducive to gambling is prohibited. Thus, any operation of any form of skill gaming (that tantamounts to gambling) outside permitted casinos is illegal.
Under the Act on Special Cases Concerning Regulation and Punishment of Speculative Acts, Etc., if one is to set up speculative business operations (i.e., slot machines, lottery ticket, wheel spinning, etc), he or she would need to obtain a permission from the Commissioner of the Local Police Agency in accordance with the foregoing Act. Generally, the permissions required for speculative operations are granted when they are deemed to promote public welfare, tourism or necessary to advertise goods for sale.
With the rising level of gambling operations, however, the public opinion against such activities has also risen, and, pressured by such public sentiment, Korean government has recently enacted the Act on General Supervisory Commission on Speculative Industries (the “Act on Commission on Speculative Industries”) in the first half of 2007. The Act on Commission on Speculative Industries, which became effective as of Jan. 26 of 2007, is intended to be the law comprehensively regulating the entire speculative industries.
But, as the primary objective of the Act on Commission on Speculative Industries is to rein in expansion of operations of gambling or speculative businesses and further restrict gambling businesses that have large revenue and a high level of speculative nature, many related parties, including owners of gambling and speculative businesses, are already raising objections to the Act, leading to public “speculation” that the Act will not much serve the purpose originally intended.
The office of statutory auditor is unique in Korea. It differs from outside auditor, who is an accountant and audits financial statements of a company. The most important function of the statutory auditor is to supervise and audit whether the directors properly discharge their duties. To this end, the statutory auditor may attend meetings of the board of directors, express opinion at such meetings and sign the meeting minutes. The statutory auditor may also require the directors to report to him on the business operation of the company. In any litigation between the company and any of its directors of the company, the statutory auditor represents the company. The powers of statutory auditor also include the power to investigate the financial condition of the company and audit whether the financial statements are prepared and maintained in an appropriate manner (this is independent from and in addition to audit by the outside auditor). The statutory auditor may also prepare an audit report and submit the same to the shareholders, request convocation of and attend the shareholders meeting.
By law, all joint stocks corporations must have at least one (non-standing) statutory auditor. (In case of a publicly traded company, depending upon the amount of total company assets, either at least one full-time statutory auditor or an audit committee is required.) The statutory auditor is elected at the shareholders meeting by an ordinary resolution and can only be removed by the shareholders by a special resolution (i.e., affirmative votes of at least two-thirds of the shares present or represented at a duly-convened shareholders meeting, but in no event less than one-third of the total issued and outstanding shares).
Under Korean commercial laws, the representative director of a corporation (a joint stock company that is normally called jushik hoesa in Korean) is responsible for implementation of resolutions of the board of directors and shareholders. The representative director is also responsible for making decisions in regard to the ordinary matters not stipulated under the Commercial Code of Korea and articles of incorporation as being subject to authorization by the shareholders or the company board. The representative director is normally elected by a board resolution among the directors of the company board. In the event that more than 1 director is appointed as representative director, the articles of incorporation must stipulate whether the directors are to act jointly or individually in representing the corporation.
If deemed necessary in implementation of the business affairs of the corporation in accordance with the resolutions of shareholders or the company board, the representative director has also power to legally represent the corporation. This is why control over the seal (of the representative director) and its use is of importance in Korea because, under Korean law, a document executed in the name of the representative director and by use of the registered seal may be assumed as a document that is validly and effectively executed by the corporation, thereby having a binding effect over the corporation. If the corporation wants to deny the legal effect of such document, it must prove that the seal was used without due authorization and the counter-party acted with bad faith with knowledge of such unauthorized use of the seal.