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Dec 19, 2011

Limited Liability Companies under Amended Korea Commercial Code

Yuhan Hoesa is a form of a company in Korea similar to a western Limited Liability Company.  It has only been utilized, to date, by small privately held corporations and some financial companies under the Korean Asset-Backed Security Act, Korean Capital Markets Act or the Financial Investment Services Act. The revised Korean Commercial Code (KCC) allows for the more efficient and effective utilization of the Yuhan corporate entity.  I will be advising the use of this company form for some of my clients.  In the past, few clients would be advised to form a Yuhan Hoesa. 

The new Korean Commercial Code is scheduled to be implemented in April 2012.  No benefits from the amended KCC may be availed of prior to the implementation of the amendments. 

Major Revisions KCC Respecting Yuhan Hoesa:
  1. Unlimited Number of Members.  Prior to the amendments only 50 members was authorized without the express approval of the courts. (KCC Article 545);
  2. Liberalized Restrictions on Transfer of a Unit.  Units may be transferred under the amended KCC even without a Special Resolution being adopted at the General Members' Meeting. The present KCC allows for the minimum procedure for transfer to be a Special Resolution at a General Members Meeting. (KCC Article 556);
  3. No Minimum Capital Requirements.  Under the present KCC, the minimum capital contribution needs to equal or exceed KRW 10 million. The amended KCC eliminates this requirement. However, foreign companies will still be required to comply with the Foreign Investment Promotion Act which requires a KRW 100 million capital contribution to establish a foreign-capital invested company. (KCC Article 546);
  4. Yuhan to Chusik (Joint Stock Company).  Prior to the amended KCC in order to convert a Yuhan Company to a Chusik Company the unanimous vote at a General Members' Meeting was required. The amended KCC allows conversion to a Chusik through a special resolution with 50% of total members in agreement and 75% of the members voting.  (KCC 607)
I would welcome an amendment that would allow Yuhan's to issue bonds.  What is the rationale behind not allowing Yuhan's to issue bonds?  Can fiduciary duties be respected through enforcement of commercial law and criminal law and not simply tying up company management because of the perception that a breach is likely?
I wrote other updates on the Korean Commercial Code which may be found below:
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SeanHayes@ipglegal.com
IPG is engaged in projects for companies and entrepreneurs doing business in Bangladesh, Cambodia, China, Korea, Laos, Myanmar, Vietnam and the U.S. www.ipglegal.com