One of the success booster to settle your business in Korea is to have a Korean joint venture designed by an expert right from the beginning of the relationship with your joint venture partner(s). Simply downloading a joint venture contract or an agreement of partnership from the Internet does not help. Go deep into your partner’s mindset and background. Additionally, find out what exactly your partner is looking for.
In the majority of the situations, the non-Korean side does not need to get into a joint venture with a Korean side to make it big in Korea. On the other hand, the Korean side does not take into account, nor has any inclination to fulfil the criteria within the framework of joint venture agreements. The sides that are on their way to start a liaison are thus are not exactly in for a recipe of success.
This article takes an overview of some salient features of a joint venture agreement in the Republic of Korea.
Points to Think About
There are a few major things that your consultant, must take into consideration, in terms of your joint venture and instruments of incorporation, before you start a joint venture in Korea.
- Obligations, tasks, roles, securities and expectations of each partner;
- Adjudication, language and medium to resolve disputes;
- Hierarchy of governance;
- Assessment, culmination, discontinuation;
- Recourse for infringement;
- Fall-back strategy;
- External investors;
- Duty of care;
- Limit the authority of the representative director;
- Authority to hire and release the representative director;
- Development aspirations;
- Preserve majority control or include other minority protection clauses;
- Investment of Earnings;
- Lease an independent accountant and employ an unbiased legal auditor;
- Benefits of the Joint Venture;
- The price you pay;
- The mission of the joint venture;
- Financing choices;
- Type of business such as Chushik, Yuhan, etc.;
And the list goes on.
Success of a Joint Venture in Korea
It is found that the success of joint ventures, in most of the cases, happens only in some scenarios. Following are the serious circumstances that are likely to be meaningful for both parties but they can arise often.
- The Korean side can directly access established channels of distribution (retail stores) or logistics chain and the non-Korean has a commodity that can easily find a comfortable place in this supply chain. Usually, this can best be dealt with by using a distribution/license agreement, in place of a joint venture agreement.
However, a number of instances, the joint venture is a lot more relevant. Though it is important to be careful because often it is not essential to have a joint venture and any new developments in the situation might destroy the relationship.
- The industry is not very open and welcoming to foreigners (there are just some select industries in Korea that are closed to foreigners – such as publishing) and the Korean side is in need of the specialization or monetary capital from the non-Korean side with the intention of achieving success in the industry.
One must be mindful of the fact that needs are not always the same and more than usual, these industries run under strict rules and regulations and often lead into a big monetary loss that is difficult to recover from.
It is also important to know here that good connections with the officials in power are no confirmation of the possibility that the government will be more supportive in your case. Even though many Korean residents have good relations with people in the government, not all of them have the capacity to take advantage of these contacts, therefore depending on these may lead to nowhere.
- The non-Korean side is not having sufficient funds and therefore, is not in a position to make an innovation commercial and the Korean side has a new product line or has the capability to manufacture spare parts. It is imperative to be on guard, as the rate of learning over time might not be up to the level of great expectations. Likewise, the need to have you on board may also be short-lived.
- The industry is one with a lot of field in action and just a handful of players. The non-Korean side may have the advantage of instant access to one of the key stakeholders, by way of the joint venture and the Korean side can get to reach out to the technology through the benefit of having the joint venture. As a rule, this is a joint venture between a Korean corporation (also known as a chaebol) and a multinational firm. Time and again, these liaisons are temporary and give rise to a large amount of time in mediation.
What Matters
Some key scenarios that have a huge impact on joint ventures are:
- A client, a holder of a small number of shares in a company that is running on foreign investment in Korea, is involved in lawsuits with other firms’ shareholders for problems the client had with the majority and other stockholders.
- The majority shareholder (has authority over the representative director) has been making use of the company profits through generous spending and engaging business deals with the company and his personal business. The majority shareholder poses a threat to prevent distributions.
- Similar circumstances may come up in a large number of cases, where a joint venture is not finalized through a cautiously designed shareholder agreement and instruments of association. Most of the shareholding fails to avoid this circumstance from taking place.
- If you live a life of luxury, it is a wise decision to get a qualified advocate to script your Korean shareholder agreement and instruments of association. It is important to ascertain that the advocate knows what he or she is working on and the right way of doing it.
- It is important to ensure that the attorney is not just going to hand over form agreements to you. Each joint venture agreement in Korea differs from the other and form agreements are indicative of the absence of caution and chances of conflicts in the times to come. It is not a smart thing to economize at this stage and therefore form articles, form shareholder agreements and form by-laws drafted by hackers, advocates who come at very low charges.
The Fundamentals of a Joint Venture
- Attention, caution, due diligence;
- Curb the powers of the representative director;
- Preserve the control to employ and do away with the representative director;
- Uphold authority on the company seal;
- Maintain majority control or involve other minority protection clauses; and
- Appoint an Independent Accountant and make use of an unbiased real statutory auditor.
Conclusion
The rapid rate at which joint ventures around the world are happening is merely an indicator of rapid globalization.
Subject to the availability of finance, get the experts of doing business in Korea, who are well versed with the Korean industry in general, in tune with the market, have local guidance specialists Contact us below for more clarity and updated information on opening a joint venture and hitting the road to success in Korea.