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.