Closing a company in South Korea can be a complex and challenging process, particularly when it comes to navigating the legal and regulatory landscape in South Korea. Whether due to financial difficulties, strategic restructuring, or other reasons, the decision to dissolve and liquidate a company requires careful planning and execution.
The legal procedure of dissolution restricts the company’s ability to do anything but liquidation. The firm does not cease to exist as a result of the dissolution; rather, it becomes a liquidating company. Closing unfinished operations, collecting debts, making payments, and distributing the company’s assets to its shareholders are all steps in the liquidation process.
PROCESS OF WINDING UP A COMPANY IN SOUTH KOREA
- Making a resolution at the shareholder’s meeting is the first step. The company’s articles of incorporation may specify additional circumstances, aside from shareholder resolutions, that would allow for a corporate dissolution.
- One thing to keep in mind is that a firm cannot dissolve if its debts exceed its assets. It has to apply for bankruptcy before the judge. After then, the court will handle the liquidation and dissolution.
- A liquidator is chosen after the dissolution resolution is passed. The representative director often serves as the liquidator, however, any third party may be chosen. The company’s legal representative during the liquidation process is the liquidator.
Registration of Dissolution
The liquidator must then file the decision of dissolution and the liquidator’s election with the court registry. It must be completed within two weeks of the resolution date.
Court Report and Public Notice
- The liquidator shall next proceed to inform the court of the reason for the dissolution, the list of assets, and the balance sheets.
- Within two months, the liquidator must publish a public notice in the local newspaper. This is a reminder to creditors that they have a deadline for reporting unpaid claims to the business.
Distribution and Repayment
- The liquidator uses the assets of the company to pay out the unpaid claims following the conclusion of the creditor’s report period. The remaining company assets are then given to the shareholders.
- Any creditor who failed to submit a report in accordance with the public notice is not legally obligated to be paid by the company. The corporation must, however, pay the creditor if it is the one about whom it already knew.
Record of Completion
- The liquidator must compile and deliver the statements of accounts to the shareholders’ meeting once the repayment and distribution have been finished. The liquidator must notify the court within two weeks of the completion of the liquidation after receiving consent from the shareholders’ meeting.
- The company’s corporate register is then closed, concluding the liquidation and dissolution procedure in Korea.
- Normally, the entire process takes three months.
POST COMPANY DISSOLUTION PROCEDURES IN SOUTH KOREA
- The company is required to notify the local tax office of the business closure before beginning the dissolution and liquidation process.
- Additionally, they will be required to pay Korean corporation tax for the business as well as shareholder dividend income tax. The dissolution’s business year’s corporate income as well as any profits made from the liquidation are covered by the corporate tax. After the company tax has been paid, the shareholders’ dividend income tax must be paid. If the shareholders receive no payout as a result of the liquidation, there will be no income tax on their dividends.
Revocation of government licenses and permits
The company must notify the Korean government of the business closure and return or revoke any licenses, licenses, or authorizations that the Korean business may have needed in order to operate.
The employment contract must be terminated, and the employees’ national health and pension accounts must be closed. Severance pay is required under Korean legislation. The company cannot ignore this responsibility, not even with the employee’s approval. It is advisable to change the income level of the employment contract to take into account this additional payment to the employee in Korea because this could place an unforeseen burden on the foreign employers.
Report on FDI
Ensure to file a cancellation of FDI registration with the Korean government agency if the company is a foreign direct investment company. This last step enables the transfer of dividend payments made as a result of business liquidation to foreign countries.
Refer to South Korea Company Registration if you wish to know more about forming a new company here.
CHALLENGES FACED WHILE CLOSING A COMPANY IN SOUTH KOREA
Here are some common challenges faced when winding up a company in South Korea:
- Legal Procedures – In South Korea, the winding-up process includes adhering to statutory demands and guidelines. It can be difficult to navigate through the complex legal structure, including completing all required paperwork, filing reports, and fulfilling legal requirements.
- Debts and Liabilities – All unpaid obligations and liabilities of the corporation must be satisfied prior to the liquidation. Finding and paying off all financial commitments, such as tax debts, creditor debts, and severance pay due to employees, can be difficult. The corporation and its directors may run into legal issues if these obligations are not properly met.
- Employee Termination – It could be challenging to end their employment contracts and give severance pay if the company has employees. South Korean labor laws protect employee rights, and specific procedures must be followed to guarantee adherence to the regulations of termination. An employee termination handled incorrectly could lead to legal problems and compensation claims.
- Asset Disposal – A firm is liquidated when its assets are sold to pay off debts and give the remaining money to shareholders. Finding purchasers for the assets and securing reasonable prices can be difficult, particularly if the company works in a specialized industry or if its assets have little potential for growth.
- Tax Obligations – It might be challenging to fulfil tax responsibilities throughout the winding-up process. The business is required to submit tax returns and settle any unpaid taxes with the relevant authorities. To ensure compliance with tax laws and prevent penalties or legal problems, it can be necessary to seek professional guidance.
- Creditor Claims – Creditors have the right to file claims against the company’s assets throughout the liquidation process. It can be difficult to manage and order creditor claims, particularly if there are disagreements or competing claims.
- Regulatory Compliance – During the winding-up process, the company must abide by a number of legal requirements, which include notifying the appropriate government agencies, shareholders, and other stakeholders. The liquidation procedure may be delayed or subject to legal repercussions if specific requirements are not met.
Relin Consultants has a team of professionals who are well aware of the laws related to company dissolution in South Korea. We will ensure that your company’s winding up process will be smooth and take care of all the legal formalities.
Reach out to us at Relin Consultants – Leading Global Business Set Up Partners for further assistance with our company dissolution services in South Korea.
What is the process of closing a company in South Korea?
In South Korea, there are various actions that must be taken in order to close a business. A shareholders’ meeting, the appointment of a liquidator, the payment of debts and liabilities, the sale of assets, the filing of a liquidation report, and getting a court order authorizing the liquidation are typical steps involved. The particular procedure may change based on the type of business and other elements.
Do I need to notify the government authorities when closing a company?
Yes, in South Korea you must inform several government agencies when closing a business. The tax office, the Ministry of Employment and Labor, the National Pension Service, the Korea Workers’ Compensation and Welfare Service, as well as the regional district office where the company is registered, must all be informed. Legal repercussions or penalties may occur from failing to notify the appropriate authorities.
What are the requirements for holding a shareholders’ meeting?
You must notify all shareholders, including minority shareholders and creditors, in writing before holding a shareholders’ meeting. The agenda for the meeting, the proposed resolution for the liquidation, and the meeting’s date, time, and place should all be included in the notification. The meeting must follow the company’s articles of formation and any applicable legislation.
How do I appoint a liquidator?
A liquidator should be chosen by the shareholders to oversee the liquidation process. A shareholder, director, or outside expert like an accountant or attorney can serve as the liquidator. The shareholders’ meeting minutes should include a note on the liquidator’s appointment.
How do I settle the company’s debts and liabilities?
An important step in the liquidation process is to settle the company’s liabilities and debts. You should list any outstanding bills and debts and create plans to pay them off. This could involve negotiating with creditors, selling off firm assets to pay off debts, or taking money directly out of the business’s bank account. Prioritize your debts and pay them off in accordance with the applicable laws.
What should I do with the assets of the company?
As part of the liquidation process, you must sell off the company’s assets in order to pay off debts and distribute the remaining funds to shareholders. The assets may be distributed, sold, or given away at the discretion of the shareholders. The assets must receive professional appraisals, and proper asset disposal procedures must be followed.
What paperwork must be submitted with a liquidation report?
The liquidation report is a crucial document that describes the company’s financial state, debts, assets, and the status of the liquidation process. Financial statements, a breakdown of your assets and liabilities, information on the claims of your debtors, and the minutes of the shareholders’ meeting where the liquidator was appointed are typically required.
Do I need the court’s permission to liquidate?
A company’s liquidation normally requires court clearance in South Korea. The court in the country where the company is registered must receive the completed and filed liquidation report. The court will issue an order approving the liquidation after considering the findings. You may carry out the liquidation process then.