Guide to Winding-Up/Closing a Korea-based Company: Korean Company Liquidation Procedure
Any business in Korea that is registered as a corporation must wind up/liquidate the company to legally close the business in Korea. Many companies, however, choose to forgo this step thinking that no repercussions will be felt. This belief is far from the reality. I know a pending case that has led to prosecutions, a lawsuit of a related company, and a tax audit of an individual shareholder. For an article on Korean Bankruptcy please see: Korean Bankruptcy Law.
The following is the procedure to close a company in Korea. Please note that this is not intended as an exhaustive explanation of the procedure.
Step 1: Resolution to Liquidate at General Shareholder Meeting
First, execute a special resolution to liquidate the Korea-based company at a general shareholder meeting. The special resolution, in most cases, must be adopted with an affirmative vote of 2/3 of the shareholders present with 1/3 of the shareholders in attendance.
Step 2: Directors May Act as Liquidators
Then, unless the articles of incorporation of the Korean company notes a different procedure, the directors may act as the liquidators. However, in most cases, it is more efficient to elect another liquidator at the aforementioned general shareholder meeting. If you are unable to find an adequate liquidator, the court will appoint one.
Step 3: Register a Motion to Liquidate the Korean Company at the Bankruptcy Court
Within two weeks from the date of the aforementioned general shareholder meeting, the Korean company should register with the court a motion to dissolve the company. The company after filing is treated similarly to a company that is in U.S. Chapter 11 bankruptcy protection. The company must file the motion at the court that has jurisdiction over the locale of the primary place of business or registered address of the company.
Step 4: File a Brief to the Korean Bankruptcy Court
The Korean court will, then, request the liquidator to file a brief to the court explaining the reason for the company dissolution. The liquidator shall be required to consult and receive approval from the company shareholders prior to filing this brief. The brief will need to include, at a minimum, a list of assets, debts, and a balance sheet. The liquidator will, also, commence the closing of accounts and the paying off of creditors. The liquidator should file the brief to the court within 14 days of his/her appointment as a liquidator. The liquidator should, also, publish in a daily newspaper two times a notice of dissolution within two months of his/her appointment as a liquidator. The notice should contain the contact details of the liquidator and request that all creditors contact the liquidator in order for the creditor to be placed on the list of creditors.
Step 5: Settle all Debts
The liquidator, at least two months after the second publication, will, then, settle all debts with the creditors up to the ability of the company to settle the debts. If the liquidator is unable to settle the debts, the court will declare the company bankrupt. The priority, settlement, and bankruptcy procedures shall be addressed in a separate post. Upon completion of Step 5, the liquidator shall compile the closing report. The report should be approved by the shareholders. The liquidator should file the report to the Korean court within two weeks of obtaining approval.
Step 6: File to the Korean NTS
The liquidator is, then, required to file documents to the National Tax Services. A separate post will detail these requirements.
This procedure is typically done with the assistance of a law firm. Please hire, only, an experienced law firm in Korea or you will produce more grey hair.
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Sean Hayes is the first non-Korean attorney to have worked for the Korean court system (Constitutional Court of Korea) and one of the first non-Koreans to be a regular member of a Korean law faculty. Sean is ranked, for Korea, as one of only two non-Korean lawyers as a Top Attorney by AsiaLaw, and IPG Legal is consistently ranked Top Dispute Resolution Law for our litigation services.
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