FormTypes of joint venture
What are the key types of joint venture in your jurisdiction? Is the ‘joint venture’ recognised as a distinct legal concept?
Both the incorporated joint venture (ie, where the parties run a business through a separate legal entity co-owned by them) and unincorporated joint venture (ie, where the parties run a business through a contract entered into and between them without involving any separate legal entity) are allowed under Korean law, but the most common type of joint venture in Korea is the incorporated joint venture.
In the case of incorporated joint ventures, most joint venture companies are incorporated in the form of either a joint-stock company (JSC) or a limited liability company (LLC). The JSC is the most common type of incorporated joint venture vehicle with limited liability in Korea and is the typical form of incorporation for foreign investors. However, foreign investors have increasingly used the LLC structure for reasons including the potential enjoyment of tax benefits in their home countries. The shareholders of a JSC are liable only up to the amount of their capital contribution and do not bear any additional liability with respect to the company. As in the case of a JSC, the liability of all members of an LLC is limited to the amount of their capital contribution. However, the individual character and objectives of each member are taken into greater account in incorporation procedures (management, organisation, etc) of an LLC compared with a JSC. An LLC can be described as a mixture of a JSC and a partnership.
The joint venture is not recognised as a distinct legal concept under Korean law.Common sectors
In what sectors are joint ventures most commonly used in your jurisdiction?
In Korea, there is no specific sector in which joint ventures are most commonly used. The decision to use joint ventures in various sectors is taken case by case, depending upon the need for cooperation between two or more business players in or outside of Korea. We have recently seen joint ventures used in, for example, the energy, shipping, food and beverage, real-estate development and manufacturing industries.
PartiesRules for foreign parties
Are there rules that relate specifically to foreign joint venture parties?
Either the Foreign Investment Promotion Act (FIPA) or the Foreign Exchange Transaction Act (FETA) will apply to foreign joint venture parties, depending, principally, on their investment amount, the size of their relative stake in the joint venture and managerial rights.
Under the FIPA, any foreign joint venture party that makes an investment of at least 100 million won in a Korean company and either acquires at least a 10 per cent equity interest in the company or is granted managerial rights in the company (such as the right to nominate a director) if it acquires less than a 10 per cent equity interest, is required to submit a foreign-investment report to either a foreign exchange bank (for which purpose most of the major commercial banks in Korea are qualified) or the Korea Trade-Investment Promotion Agency (KOTRA) prior to its investment in Korea. The report is a matter of formality and is usually completed within two days.
Under the FETA, any foreign joint venture party that does not satisfy any of the above-mentioned qualifications under the FIPA is required to submit a securities acquisition report to a foreign exchange bank before its investment in a Korean company. The securities acquisition report is also a matter of formality and is usually completed within two days.
For further reference, an investment that meets the FIPA criteria, as opposed to an investment under FETA, can qualify for certain tax breaks such as acquisition tax reduction, in cases such as in high-technology sectors, or investments in a large project in a free economic zone. With a FIPA investment, there is also a convenient visa available for subsidiary personnel.Ultimate beneficial ownership
What requirements are there to disclose the ultimate beneficial ownership of a joint venture entity?
There is no legal requirement in Korea to publicly disclose the ultimate beneficial ownership of a joint venture entity.
For reference, local and global banks in Korea require certain information regarding the beneficial owner of a joint venture party as part of their ‘know your client’ rules and processes if such joint venture party wishes to establish its own bank account in Korea or carry out certain financial transactions.
Setting up and operating a joint ventureStructure
Are there any particular drivers in your jurisdiction that will determine how a joint venture is structured?
The incorporated joint venture structure provides limited liability to the joint venture parties and this benefit drives most joint venture parties towards an incorporated structure. The details of the joint venture structure in any particular case vary widely depending on the parties’ commercial objectives, relative bargaining power, whether they are domestic or foreign, and many other factors.Tax considerations
When establishing a joint venture, what tax considerations arise for the joint venture parties and the joint venture entity? How can tax charges be lawfully mitigated?
Incorporated joint ventures are subject to a 0.48 per cent registration tax on capital contributions (1.44 per cent if the head office of the joint venture entity is located in Seoul Metropolitan Area). In addition, a joint venture entity acquiring real estate, motor vehicles, heavy equipment and certain other items is required to pay acquisition tax.
If the joint venture is established in the form of a company (not a branch or liaison office) by foreign entities by way of an investment that meets the FIPA criteria and the Tax Incentive Limitation Law (TILL) acquisition tax reduction will be granted. The TILL has been amended and a reduction or exemption in respect of corporate income tax is not available for foreign investment from 1 January 2019; consequently, corporate income tax will no longer be mitigated because of an investment into a joint venture by a foreign entity.Asset contribution restriction
Are there any restrictions on the contribution of assets to a joint venture entity?
Under Korean law, contribution in kind to a joint venture entity is allowed. As for a JSC, implementation of an in-kind contribution requires valuation by an independent appraiser and review by a court. An in-kind contribution relating to an LLC does not require valuation or court review.Interaction between constitution and agreement
What is the interaction between the constitution of the joint venture entity and the agreement between the joint venture parties?
In terms of governing the legal relationship of the joint venture entity, in case there is any discrepancy between the constitution of the joint venture entity and the agreement between the joint venture parties, the constitution of the joint venture entity, which is an official by-law of the entity, takes precedence over the joint venture agreement, which is a private agreement between the joint venture parties. This principle applies in the same manner even if the joint venture entity becomes a party to the joint venture agreement. In this case, the joint venture entity will assume contractual liabilities to follow the joint venture agreement, but any legal relationship thereof will still be governed by the constitution of the joint venture entity.
Considering this precedence, the joint venture parties often include a provision stating that, between the parties themselves, the joint venture agreement takes precedence over the constitution of the joint venture entity, and that the parties must ensure that the constitution of the joint venture entity is consistent with the joint venture agreement and, in the event of any inconsistency between the constitution and the joint venture agreement, the parties must promptly amend the constitution so as to conform in all respects with the joint venture agreement.
Under Korean law, there is no requirement to register the joint venture agreement with any government agency.Party interaction
How may the joint venture parties interact with the joint venture entity? Are there any restrictions?
In Korea, interactions between joint venture parties and the joint venture entity vary, including in the following:
- joint venture parties conduct business transactions, including sale of goods and provision of services;
- joint venture parties license intellectual properties to the joint venture entity; and
- joint venture parties second their employees to the joint venture entity (see question 15).
In general, interactions between the joint venture entity and joint venture parties are regulated by the joint venture agreement. This will typically deal with matters such as information-sharing, preparation of business plans, financial statements and other matters.
Interactions between the joint venture entity and the joint venture parties must also comply with the following restrictions:
- any transaction between a joint venture party and the joint venture company must be conducted at arm’s length (see question 14);
- any transaction between the joint venture entity and a joint venture party that holds 10 per cent or more of the shares, which falls within the scope of a ‘self-dealing’ transaction under Korean law, must be approved by an affirmative vote of two-thirds of the all-incumbent board members of the joint venture entity after the party seeking to engage in the self-dealing transaction discloses to the board of the joint venture entity:
- the fact that such transaction falls within the scope of a self-dealing transaction; and
- all material facts relating to such transaction (otherwise, the transaction could be nullified if challenged); and
- insider trading issues will apply where the joint venture entity is a listed company.
How may the joint venture parties exercise control over the joint venture entity’s decision-making?
In order for minority investors to exercise control over the joint venture entity’s decision-making, minority investors usually insist on (i) having the right to appoint one or more directors or high-ranking executives of the joint venture entity; and (ii) provisions specifying one or more of the following items in the joint venture agreement and constitution of the joint venture entity:
- majority investors must obtain minority investors’ prior written consent; this prompts the joint venture entity into taking or not taking certain material corporate actions so that minority investors have veto rights on such items;
- certain material corporate actions must be approved at the shareholders’ meeting and the voting or quorum requirement of the shareholders’ meeting approving such items must be further restricted or confined so that minority investors have veto rights on such items; and
- certain material corporate actions must be approved at the board meeting, provided that:
- the voting or quorum requirement of the board meeting approving such items are further restricted or confined; or
- an affirmative vote by the director appointed by minority investors to approve such items is obtained so that minority investors have veto rights on such items.
Material corporate actions covered by the above provisions typically include, among other things:
- finalisation of the joint venture’s annual budget and business plan;
- mergers and promotion of any new business;
- amendment to corporate governance regulations, such as the constitution;
- transactions with any related company;
- determination of remuneration of directors or statutory auditors;
- matters concerning dividends;
- matters concerning capital increases or decreases, borrowings or other obligations in an amount exceeding a certain threshold; and
- expenditure in an amount exceeding a certain threshold.
Minority investors are recommended to include provisions regarding the above-mentioned certain items in the constitution of the joint venture entity as well as the joint venture agreement to invalidate corporate actions conducted by the majority shareholders in breach of the joint venture agreement. In other words, if such provisions are only included in the joint venture agreement, minority investors may have contractual recourse and claim for damages but it may be difficult to invalidate the specific corporate actions that have already been taken.
See question 27 for an explanation of minority investors’ statutory rights under Korean law.Governance issues
What are the most common governance issues that arise in connection with joint ventures? How are these dealt with?
The categories below deal with common types of governance issues.General shareholders’ meeting
Issues that may arise in a general shareholders’ meeting include:
- whether to include matters requiring the consent of minority shareholders (consent rights);
- whether to reinforce the requirements for a resolution of a general meeting of shareholders or the board of directors in order to substantially have a right to veto; and
- whether to include matters requiring resolution of a general shareholders’ meeting.
If a joint venture party owns a significant minority stake, that party often desires to influence the corporate governance of the joint venture entity to a certain degree and requires, as a means to do so, a right to nominate directors and a veto (or consent right) with respect to any matters requiring a resolution of a general meeting of shareholders or the board of directors.Board of directors
Under the Korean Commercial Code (KCC), a JSC is required to have at least three directors unless such company has total paid-in capital of less than 1 billion won, in which case one or two directors are allowed. Therefore, certain issues include:
- the total number of directors and each shareholder’s right of nomination;
- the distribution of authority among shareholders, or a board of directors or a representative director; and
- quorum for shareholders’ or board of directors’ resolutions (ie, simple majority, supermajority or a director nominated by the investor required to be present).
Under the KCC, the representative director has comprehensive power to represent the company internally and externally, and thus to carry out all judicial or non-judicial acts relating to the business of the company, including executing contracts for and on behalf of the company. Thus, any acts of the representative director falling within his or her corporate authority will bind the company, and agreements executed by the representative director on behalf of the company will constitute valid, legal and binding obligations of the joint venture company.
If a joint venture party owns a significant minority stake, that party may wish to have a right to appoint a CFO of the joint venture entity to balance the representative director’s power.
It is important to consider (i) the number of representative directors, if applicable, or the director (or directors) and shareholders’ powers of representation; and (ii) a restriction on the representative director or directors’ power of representation and executive authority.Appointment of statutory auditors or independent auditors
Under the KCC, a JSC is required to have at least one statutory auditor unless it has total paid-in capital of less than 1 billion won, in which case the appointment of the statutory auditor is not mandatory.
The statutory auditor’s function is to supervise and ensure that the performance of duties of officers and directors is in compliance with relevant laws and internal corporate regulations, including the articles of incorporation, and to review and present its opinion on the financial statements to be submitted to the shareholders’ meeting. The statutory auditor is an internal corporate governance organ of the company distinct from an independent auditor, such as an accounting firm, responsible for the preparation and audit of financial statements.
It is thus important to consider the number of statutory auditors or each shareholder’s right of nomination.Nominee directors
With an incorporated joint venture, what controls exist in your jurisdiction in relation to nominee directors? How should a nominee director balance the potentially conflicting interests of the joint venture company and the appointing shareholder?
Under the KCC and the Korean Civil Code, the director of a company owes fiduciary duty to the company. In case there is any conflict of interest between the joint venture company and the joint venture party who nominated him or her as director, the nominee director must act in the best interests of the joint venture company in compliance with his or her fiduciary duty to the joint venture company. If a director breaches his or her duties to the company, he or she may be subject not only to civil liabilities to the company - as well as to third parties for damages arising from the breach - but also to criminal liabilities.Competition law
What competition law considerations are engaged by the formation and operation of the joint venture? Is approval needed?
Under the Monopoly Regulation and Fair Trade Act (MRFTA) - the main merger-control statute in Korea - upon the formation of a joint venture company, a merger clearance process with the Korea Fair Trade Commission (KFTC) may be required depending on the size (assets or turnover) of the joint venture parties or the joint venture company (i) by establishment of a new company by the joint venture parties; or (ii) by acquisition of shares in an existing company, which was originally owned by a joint venture party, by another joint venture party. Merger clearance is requested from the KFTC by way of filing a business combination report.
For transfer pricing issues under the MRFTA relating to the operation of the joint venture company, see question 14.Provision of services
What are the key considerations in your jurisdiction in structuring the provision of services to the joint venture entity by joint venture parties?
The MRFTA requires transactions between affiliated parties to be made at arm’s length. Also, it may be helpful to understand the transfer pricing provisions under Korean tax law when structuring the provision of services to the joint venture company by joint venture parties.
Under the MRFTA, if a transaction between a company and its affiliate (which may include joint venture parties) is not entered into on an arm’s-length basis, and subsequently results in an anticompetitive effect on the relevant market in Korea, the transaction may be deemed an unfair trade practice. In such case, both the company providing the unfair benefit (eg, advantageous pricing) and the company receiving the unfair benefit may be subject to an administrative penalty and other corrective actions. The company providing the unfair benefit may additionally be subject to criminal penalties. In addition, under the Corporate Income Tax Act (in the case of transactions between domestic affiliates) and the Adjustment of International Taxes Act (in the case of transactions between Korean companies and overseas affiliates), additional taxes may be imposed on a company or its affiliates involved if the consideration paid is deemed unreasonably lower or higher than fair market value. In the case of a loan agreement between affiliates, additional taxes may be imposed on the lender if the interest rate is lower than the fair market interest rate or the borrower if higher than the fair market interest rate.Employment rights
What impact do statutory employment rights have in joint ventures?
Under Korean law, there is no specific impact on the statutory employment right triggered by the formation of joint ventures; the statutory employment right will remain intact even thereafter.
If the joint venture parties have obtained the consent of the respective seconded or transferred employees in respect of their secondment or transfer to the joint venture company, the joint venture parties may temporarily dispatch their employees to the joint venture company to support the joint venture company’s operation (eg, by providing technical support for IT systems of the joint venture company) or permanently transfer their employees to the joint venture company.Intellectual property rights
How are intellectual property rights generally dealt with on the creation, operation and termination of a joint venture in your jurisdiction?
For the operation of a joint venture in Korea, the joint venture parties usually grant licences to the joint venture company to use the intellectual property rights owned by the joint venture parties.
Also, during the course of creation, operation or termination of a joint venture in Korea, certain intellectual property rights may be invented in and transferred from or to the joint venture. In relation to the invention of intellectual property rights, it is not uncommon for the joint venture parties to address in the joint venture agreement to which party the title to the intellectual property rights will belong and to what extent the other party is entitled to use these intellectual property rights. In relation to the transfer of intellectual property rights, except for certain technologies related to national security or those with high technological and economic value (in which case, the transfer is subject to approval from a relevant governmental authority), the title to the intellectual property rights is transferable without restrictions.
Funding the joint ventureTypical funding
How are joint ventures generally funded in your jurisdiction? Are there any particular requirements relating to funding and security packages?
Joint ventures in Korea are generally funded by capital injection, shareholder loans, financial institution loans or a combination of the three.
Under the Korean version of the thin capitalisation rule, if the amount of a loan extended to a Korean company by or under the guarantee of its foreign-controlling shareholder (owning directly or indirectly 50 per cent or more of the total voting shares of or otherwise having substantial control over the Korean company) or its foreign affiliates (50 per cent or more of the total voting shares that are directly or indirectly owned by the controlling shareholder) exceeds 200 per cent (600 per cent for certain financial institutions) of the amount of the equity capital contributed by such foreign-controlling shareholder and its foreign affiliates, then interest payments made on such excess portion of the loan will be deemed as dividends and, accordingly, not be treated as deductible expenses of the Korean company for tax purposes. In such a case, the interest paid by the Korean company on the excess portion of the loan will be subject to withholding tax at the tax rate applicable to dividends (rather than interest), in accordance with the Corporate Income Tax Act or the relevant tax treaties.
In addition to the thin capitalisation rule, the net interest paid by a Korean company (excluding companies engaged in the finance or insurance business) to foreign affiliates in excess of 30 per cent of the adjusted taxable income of the Korean company will not be deductible.
Where both the thin capitalisation rule and the limitation on deduction of interest payable to foreign affiliates are applicable, the rule resulting in a larger disallowance of interest expense deduction applies.Capital injection restrictions
Are there any legal or regulatory restrictions on the injection of capital into, or the distribution of profits or the extraction of cash by other means from, the joint venture entity?
In the case of equity financing of the joint venture entity, unless the joint venture entity is engaged in a business in which the foreign investment is not or only partially permitted (see question 31 for further details on the restrictions on the foreign investment under Korean law), and assuming that the filing requirements under the FIPA or FETA have been fulfilled (see question 3 for further details on filing requirements for the foreign investment under Korean law), there are no restrictions on the injection of capital into the joint venture entity imposed by law or regulation. In the case of debt financing of the joint venture entity, assuming that the filing requirements under the FIPA or FETA have been fulfilled (depending on the amount and the denomination of the loan), there are no restrictions on the drawdown of the loan by the joint venture entity.
Assuming that the filing requirements under the FIPA or FETA and the relevant procedural requirements under the KCC have been fulfilled, there are no restrictions on the distribution of profits or the extraction of cash by other means from the joint venture entity. For instance, a company can freely remit dividends overseas through a designated foreign exchange bank as long as (i) the FIPA or FETA report has been submitted to the foreign exchange bank or KOTRA at the time of the injection of capital into the joint venture entity; and (ii) the shareholders or the board, as the case may be, of the joint venture company has duly approved this distribution of dividends based on the accrued retained earnings set forth in the past fiscal year’s year-end financial statement and pursuant to the requirements under the KCC.Tax considerations
What tax considerations should be taken into account in the operation of the joint venture?
Korean corporate income tax is assessed based on the status of the corporation. A corporation with its head office or principal office or effective place of management in Korea is a domestic corporation and is defined as a resident corporation. A resident corporation is subject to corporate income tax on its worldwide income. A non-resident foreign corporation without permanent establishment in Korea is subject to Korean withholding taxes in general on its Korean-sourced income.
As such, an incorporated joint venture established in Korea will be required to submit tax filings for corporate income tax on its worldwide income in the same manner as Korean-resident corporations. The current corporate tax rate (including local income tax) applicable to both entity types is 11 per cent for taxable income up to 200 million won, 22 per cent for income over 200 million won up to 20 billion won, 24.2 per cent for income over 20 billion won up to 300 billion won and 27.5 per cent for income over 300 billion won.
Distribution of profits by a joint venture, such as dividends or interest, to non-resident joint venture parties is ordinarily subject to Korean withholding tax on a gross basis at a rate of 22 per cent (including local income tax) or a lower rate as permitted under an applicable income tax treaty.
An unincorporated joint venture is generally not regarded as a separate taxable entity and, consequently, the income of the unincorporated joint venture will flow through to the joint venture parties for tax purposes.Accounting and reporting issues
Are there any noteworthy accounting or reporting issues for the joint venture parties regarding their investment in the joint venture?
With respect to the reporting requirements regarding the joint venture partners’ investment in the joint venture, in addition to the foreign investment report or securities acquisition report for FIPA or FETA investment (see question 3) and the business combination report (see question 13), the following registrations are required after the formation or establishment of the joint venture company:
- registration of establishment or capital increase of the joint venture company with the corporate registry office of the competent district court;
- business registration with the competent district tax office; and
- foreign-invested company registration with a foreign exchange bank (where the foreign shareholder’s investment in the joint venture company qualifies as a FIPA investment).
Under the Korean accounting standards, where a joint venture is an arrangement of which two or more parties have joint control, each joint venture partner accounts for its participation in the joint venture by the equity method or the proportional consolidation method. If one of the joint venture parties has sole control of the joint venture, that controlling party will consolidate the joint venture in its consolidated financial statements.
Deadlock, exit and terminationDeadlock provisions
What deadlock provisions are commonly included in joint venture agreements in your jurisdiction?
The deadlock provisions commonly included in US and UK joint venture agreements are also often used in joint venture agreements in Korea. For example, many of the joint venture agreements in Korea include provisions specifying what will constitute a deadlock, who will resolve the deadlock (eg, high-ranking executives, arbitrators or certain representatives of the joint venture parties), whether a cooling-off period will apply and what kind of rights the joint venture parties are granted if a deadlock cannot be resolved (rights to request the dissolution of the joint venture company, put or call options, etc).Exit provisions
What exit provisions are commonly included? Does the law restrict any forms of mandatory transfer provision or any basis of calculation?
Commonly included provisions relating to exit from the joint venture include:
- lock-up provisions (ie, minimum holding period);
- provisions specifying certain qualifications of the possible transferees of the shares in the joint venture company;
- right of first refusal or offer;
- tag-along or co-sale right; and
- put or call options.
Frequently, transfers to affiliates are permitted as an exception to these restrictions. For reference, under Korean law, a company may, by specifying such a requirement in its articles of incorporation, require that a transfer of its shares be subject to board approval. In this case, a share transfer made in the absence of board approval may be nullified, if challenged. For further reference, an LLC may require that a transfer of its units be subject to certain additional restrictions listed in its articles of incorporation as well as board approval.
There is no specific restriction imposed by Korean law in connection with joint ventures on any forms of mandatory transfer provision or any basis of calculation of the purchase price for shares, including in respect of the transfer of shares on insolvency.Tax considerations following termination
What are the tax considerations on termination of the joint venture?
An incorporated joint venture is subject to corporate income tax on its liquidation income, if any, at the normal corporate income tax rate. The joint venture parties are subject to corporate income tax on dividend income from liquidating distributions received from the joint venture entity. Corporate income tax owed by a non-resident joint venture party will be collected through withholding.
If joint venture parties sell their interest in the joint venture, the joint venture parties are subject to corporate income tax on capital gains upon transfer of their interest. Capital gains earned by non-resident joint venture parties upon transfer of their shares are generally subject to Korean withholding tax at the lower of (i) 11 per cent (including local income tax) of the gross proceeds realised; or (ii) 22 per cent (including local income tax) of the net realised gains (subject to the production of satisfactory evidence of the acquisition costs and certain direct transaction costs), unless exempt from Korean income taxation under the relevant tax treaty.
DisputesChoice of law and resolution methods
In your jurisdiction, are there constraints on the choice of law or the method of dispute resolution provided for in joint venture agreements?
In principle, the joint venture parties have discretion in choosing the governing law or the method of dispute resolution under the joint venture agreement. However, if the joint venture parties’ choice of governing law or the method of dispute resolution have no link to either of the joint venture parties, the Korean court may find the joint venture parties’ choice to be null and void. Further, notwithstanding the joint venture parties’ choice of governing law, certain mandatory provisions of Korean law will still apply to the relationship of the joint venture parties.Mandatorily applicable local law
What mandatory provisions of local law will apply irrespective of the choice of governing law?
The mandatory provisions of Korean law that will apply irrespective of the choice of governing law include:
- fundamental provisions in relation to the establishment;
- operation and dissolution or liquidation of a Korean company (such as provisions relating to the procedures required for an in-kind contribution when establishing the company or subscribing new shares in the company);
- the statutory rights of minority shareholders;
- the method of nullification of establishment of a company; and
- the procedures required for the dissolution or liquidation of the company.
Laws that are of general application to commerce in Korea are also relevant, regulating areas such as competition, employment and foreign exchange.Remedy restrictions
Are there any restrictions on the remedies a tribunal can grant that would have a bearing on the arbitration of joint venture disputes? Are there any restrictions on the arbitration of shareholder claims?
Under Korean law, there are no specific restrictions on the remedies an arbitration tribunal can grant. However, it is questionable as to whether a Korean court would enforce injunctive relief, specific performance or other interim relief measures granted by an arbitration tribunal.
Further, there are no specific restrictions on the arbitration of shareholder claims. However, it is questionable as to whether a Korean court would enforce a judgment granted by an arbitration tribunal with respect to certain disputes that is subject to resolution only by a court under Korean law, such as disputes involving the validity of shareholders meeting resolutions of the joint venture company.Minority investor protection
Are there any statutory protections for minority investors that would apply to joint ventures?
Under Korean law, rights of minority shareholders who hold an equity stake of one-third or less are generally limited to, among other things, access to internal financial documents and the right to bring an action in the event of a breach of fiduciary duty by a director. Differences in minority shareholder rights at or below the level of one-third ownership are not significantly meaningful from a corporate governance perspective, as significant differentiation of rights begins above one-third ownership. Shareholders with an equity stake of one-third or more hold definitive veto rights by law over certain important actions requiring supermajority approval.Liabilities
How can joint venture parties have liabilities to each other beyond what is expressly agreed in the joint venture agreement?
In respect of contractual liabilities, the joint venture parties would not have liabilities to each other beyond what is expressly agreed in the joint venture agreement (including in relation to third-party claims). Depending on the circumstances in which the joint venture parties acquired their interests in the joint venture company, acquisition agreements such as sale or subscription agreements could also contain warranties or other provisions imposing contractual liability.
In respect of tortious liabilities such as claims for fraud, however, the joint venture parties may have liabilities to each other beyond what is expressly agreed in the joint venture agreement (including in relation to third-party claims).Disclosure of evidence
Are there any particular issues that can arise in joint venture disputes in your jurisdiction concerning disclosure of evidence?
Under Korean law, there is no statutory attorney-client privilege and there is no discovery process, which exists in some other jurisdictions such as the United States. The Korean court can, at its discretion or by accepting the other party’s request, order a party to submit certain documents to the court.
Market overviewJurisdictional advantages
What advantages does your jurisdiction offer for parties wishing to set up and operate joint ventures?
Under Korean law, other than certain advantages generally offered to foreign investors investing in Korea whose investment meets certain criteria under the FIPA (for further details on the FIPA investment, see question 3), there are no advantages specifically offered for parties wishing to set up and operate joint ventures in Korea.Requirements and restrictions
Are there any particular requirements or restrictions relating to joint ventures in your jurisdiction that could deter international investors?
In principle, international investors may, without restrictions and subject to the filing requirements mentioned in question 3, invest in joint ventures that conduct various business activities in Korea. However, under the FIPA, international investors are restricted from foreign investment in the following cases:
- where it is deemed to threaten the maintenance of national security and public policy;
- where it is deemed to have harmful effects on public hygiene or environmental preservation or run counter to Korean morals and customs; and
- where it violates the Acts and subordinate statutes of Korea.
More specifically, out of a total of 1,196 categories of business listed under the Korean Standard Industrial Classification, foreign investment is not permitted in 61 categories, including public administration, diplomacy and national defence, and only partially permitted in 30 categories, including publication of newspapers, broadcasting, wired telecommunications, mobile, satellite or other electric communications and commercial banks under certain conditions described in each relevant law.
Updates & TrendsKey developments of the past year
What are the current trends affecting joint ventures in your jurisdiction? What recent developments in legislation and case law have had an impact on joint ventures?Key developments of the past year32 What are the current trends affecting joint ventures in your jurisdiction? What recent developments in legislation and case law have had an impact on joint ventures?
There are no notable current trends affecting joint ventures in Korea.
In respect of notable recent developments in legislation that could affect joint ventures in Korea, in 2019, the KFTC has revised its merger review guidelines to take into account information assets (including big data) and specialised merger review standards for digital economy companies (in which the criteria applied by the KFTC for the purpose of defining the relevant market are tailored for such companies). In addition, the KFTC is contemplating an additional notification threshold for ‘unicorn’ deals. The current approach is relatively straightforward, based on the revenues or assets of the parties, but may not cover transactions involving highly valuable start-ups, which at the time of transaction may not have significant revenues or assets meeting the thresholds, but whose deal valuation is relatively high in anticipation of their potential importance in the markets (‘unicorn’ start-ups). The United States, Austria and Germany are a few countries that have introduced transaction-value-based thresholds. If adopted, the size-of-transaction test would intensify competition law enforcement in the era of the digital economy. However, this proposal is still under consideration and open for further discussion.