Joint Ventures 2025 Comparisons

Over the past 12 months, macroeconomic and geopolitical developments – including global inflation, the wars in Ukraine and the Middle East, and the evolving US trade policy landscape (eg, the Inflation Reduction Act, CHIPS Act, and export controls on China) – have had a notable impact on the structure and strategic objectives of joint ventures (JVs) involving South Korean companies.

In response to US subsidy regimes and local content requirements, South Korean battery and EV parts manufacturers are increasingly entering into joint-venture transactions with US automakers to establish production facilities in the US. These JVs often involve complex structuring, including phased capital commitments, tax incentives, and joint control mechanisms.

In addition, with India’s emergence as a key growth market, there has been an increasing trend of JV transactions between South Korean and Indian companies within India.

As of 2025, joint-venture activity has been particularly active in strategic sectors such as EV batteries, semiconductors, hydrogen, and clean energy. The surge in JV activity in these industries is largely attributable to US policy initiatives such as the Inflation Reduction Act (IRA) and the CHIPS Act.

A traditional joint-venture company (JVC) in the form of a stock company (chusik hoesa in Korean, similar to a corporation in the USA) is the most commonly used form of JV in South Korea. A JVC in the form of a limited liability company (yuhan hoesa) is also often used.

Some of the key advantages and disadvantages of using chusik hoesa are as follows.

• Advantages:
1. public offering of shares is permitted;
2. issuance of debentures is permitted; and
3. the corporate laws (and cases) around chusik hoesa are well established, as it is the most commonly used form of corporate entity in South Korea.
• Disadvantages:
1. rules around management structure are generally more restrictive than for other forms of corporate entities (eg, minimum three directors and one statutory auditor required for companies with paid-in capital of KRW1 billion or more, maximum three-year term for directors, etc); and
2. it is generally subject to more stringent public disclosure requirements.

Some of the key advantages and disadvantages of using yuhan hoesa are as follows.

• Advantages:
1. a more flexible management structure is permitted (no minimum number of directors required, no board of directors required, no maximum term of directors applicable, etc); and
2. it is generally subject to less stringent public disclosure requirements.
• Disadvantages:
1. public offering of shares is not permitted;
2. issuance of debentures is not permitted; and
3. the corporate laws (and cases) around a yuhan hoesa are not as well established as for a chusik hoesa.

The primary drivers for choosing the form of a JVC are:

• whether the public offering of shares is contemplated;
• funding options (eg, whether issuance of debentures will be necessary); and
• flexibility in management structures.

Both chusik hoesa and yuhan hoesa are treated as separate legal entities subject to corporate income tax under South Korean tax law. Accordingly, there is no significant difference in the basic corporate tax framework applicable to the two types of entities.

The primary source of law relating to corporate governance is the Korean Commercial Code (KCC), which applies to both listed and unlisted companies.

For listed companies, additional regulations are contemplated in the Financial Investment Services and Capital Markets Act (“Capital Markets Act”) and relate to (among other things):

• public disclosures;
• the establishment of audit committees and election of outside directors;
• insider trading; and
• prohibition of unfair trade practices.

It is mandatory for listed companies to comply with listing rules, including the Rules on Issuance of Securities and Disclosure (which are derived from the Capital Markets Act) as well as with the applicable listing rules of the Korea Exchange, including:

• the Korea Composite Stock Price Index (KOSPI) Market Listing Rules;
• the Korean Securities Dealers Automated Quotations (KOSDAQ) Market Listing Rules;
• the KOSPI Market Disclosure Rules; and
• the KOSDAQ Market Disclosure Rules.

The Monopoly Regulation and Fair Trade Act (MRFTA) regulates:

• business combination reports;
• certain intra-group transactions such as cross-shareholding and provision of guarantees;
• separation of commerce and financial business; and
• conduct of qualifying/large holding companies.

The Foreign Investment Promotion Act (FIPA) and Foreign Exchange Transactions Act (FETA) apply to any foreign direct investment or overseas direct investment satisfying certain conditions.

The primary regulators pursuant to the main statutory provisions described in the foregoing are:

• the Ministry of Justice (under the KCC);
• the Financial Services Commission (under the Capital Markets Act);
• the Korea Exchange (under the Rules on Issuance of Securities and Disclosure and applicable listing rules of the Korea Exchange);
• the Korea Fair Trade Commission (KFTC – under the MRFTA);
• the Ministry of Finance or the Bank of Korea (under the FETA); and
• the Ministry of Trade, Industry and Energy (MOTIE – under the FIPA).

The following AML regulations apply in South Korea.

• The Act on Reporting and Using Specified Financial Transaction Information – this act governs the anti-money laundering (AML) obligations of financial institutions in South Korea, such as the obligations regarding suspicious transaction reports, currency transaction reports, know your customer (KYC) and other matters relating to internal control.
• The Act on Regulation and Punishment of Criminal Proceeds Concealment – this act governs matters regarding:
1. concealment of criminal proceeds related to particular crimes; and
2. confiscation of such criminal proceeds.
• The Act on Prohibition Against the Financing of Terrorism and Proliferation of Weapons of Mass Destruction (“CFT/WMD Act”) – this act governs matters relating to:
1. the financing of terrorism against the public; and
2. the financing of proliferation of weapons of mass destruction.
• The Act on Special Cases Concerning the Prevention of Illegal Trafficking in Narcotics – this act governs matters relating to narcotics-related activities and the confiscation of proceeds from such activities.

Industries subject to certain foreign investment restrictions include the following:

• prohibited industries – nuclear power generation, radio broadcasting, terrestrial television broadcasting and postal services;
• less than 50% foreign ownership permitted – farming of beef cattle, wholesale of meat products, domestic and international passenger and cargo transportation by sea and air, newspaper publication, magazine and periodical publication, etc;
• less than 50% foreign ownership (where a South Korean national is the largest shareholder) permitted – power generation, power grid and electricity sales business;
• 49% or less foreign ownership permitted – programme distribution, cable television networks, satellite and other broadcasting, wired/wireless telecommunications and other telecommunications business; and
• less than 25% foreign ownership permitted – news agency businesses.

Furthermore, any investment that may pose a threat to the national security of South Korea (in particular, any investment that might hinder the manufacture/production of defence materials, might pose a risk of leakage of state secrets and/or national core technology, etc) may be prohibited or restricted by the MOTIE upon review of the foreign investment committee. Under the current FIPA, only direct investments by foreign investors are subject to regulatory review. However, the proposed amendment to the FIPA expands the scope of national security review to include cases where the foreign investor controls a South Korean entity through a foreign-invested company.

National Core Technology

In the event that any technology owned by an investee company is deemed a “National Core Technology”, as defined under the Act on Prevention of Leakage and Protection of Industrial Technology, the following applies:

• if the investment target has received any government subsidies for R&D, an approval by the MOTIE prior to closing will be required; and
• if the investment target has not received any such government subsidies, a report to the MOTIE prior to closing will be required.

Technically, the MOTIE is required to notify the applicant within 45 days from the date of receipt of the application. However, this review period is often delayed beyond the 45-day period as the MOTIE can conduct a technology examination if deemed necessary for certain national core technologies, and the examination is not included within the 45-day review period.

Sanctions

South Korea has implemented international economic, financial and trade sanctions as required by the United Nations Security Council Resolutions (UNSCR) and other international treaties to which it is a party. South Korea has also incorporated into its domestic regime (as it deemed necessary) certain sanctions regimes of its main allies, such as the USA and the EU, with the legislative intent of contributing to the international effort to maintain global peace and security.

A great deal of domestic legislation exists regarding international sanctions applicable to several economic sectors, including the following.

• The Foreign Trade Act is mainly applicable to trade sanctions.
• Economic and financial sanctions are governed mostly by the FETA and the CFT/WMD Act.
• Other types of sanctions such as travel bans, aviation bans and maritime sanctions are governed by:
1. the Immigration Act;
2. the Customs Act;
3. the Coast Guard Affairs Act;
4. the Act on Arrival and Departure of Ships; and
5. the Aviation Safety Act.

Under the MRFTA, if a company with total assets or revenues of KRW300 billion or more as of the end of the immediately preceding fiscal year and a company with total assets or revenues of KRW30 billion or more as of the end of the immediately preceding fiscal year establish a JV company in South Korea, a business combination report must be filed with the KFTC. The total assets or revenues for the purpose of the foregoing are calculated on a consolidated basis, including assets or revenues of companies worldwide maintaining affiliate status with the constituent companies both before and after the merger. If these thresholds are met, the notification to the KFTC must be made within 30 calendar days after the closing date.

If either of the JV partners is a large company with worldwide assets or annual revenue of KRW2 trillion or more (on a consolidated basis), the transaction is subject to a pre-closing filing, and a notification to the KFTC is required after the date of signing but before the closing date (ie, the registration of the merger with the court registry). The parties cannot implement the transaction without clearance from the KFTC in the case of a pre-closing filing. The party with the largest equity stake in the JV company is responsible for submitting the business combination report filing (hereinafter, the company required to file the business combination report is referred to as the “Reporting Company”, and the other party is referred to as the “Partner Company”).

In addition, the amendment to the MRFTA in 2021 introduced new thresholds for transactions involving small-sized targets. Under the amended MRFTA, even for a transaction that does not satisfy the thresholds described earlier in this section, a filing can be required when:

• the transaction value is KRW600 billion or more; and
• the Partner Company has had significant business activities in South Korean domestic markets.

“Significant business activities” are those where:

• the Partner Company has sold or provided products or services to at least one million people per month in the South Korean market during the immediately preceding three years; or
• the Partner Company has either leased R&D facilities or used R&D personnel in South Korea and had an annual R&D budget of at least KRW30 billion for the South Korean market during the immediately preceding three years.

The MRFTA was further amended in 2024, and the following four types of transactions will be exempt from the business combination report obligation (effective from 7 August 2024):

• establishment of private equity funds;
• mergers and asset/business transfers between a parent and its subsidiary;
• interlocking directorships involving less than one third of the directors (excluding the interlocking directorships involving the representative director); and
• mergers between affiliates where the total assets or revenues of the merged entity itself are less than KRW30 billion.

Disclosure Requirements (Korea Exchange Disclosure Regulations)

According to the KRX Disclosure Rules, an investment must be disclosed on the date of the decision to participate in the JV when:

• a KOSPI-listed company, as a participant in a JV, invests an amount exceeding 5% of its equity (or 2.5% for large corporations with total assets of KRW2 trillion or more (“Large Corporations”)); or
• a KOSDAQ-listed company invests an amount exceeding 10% of its equity (5% for Large Corporations).

Additionally, if certain significant events occur in the subsidiary of the listed company (suspension of business operations, commencement of rehabilitation/bankruptcy proceeding, merger, division, significant transfer of business, change in capital, etc), the listed company – which is the parent company of the subsidiary – must also disclose the information about the subsidiary. Therefore, where a JV is a subsidiary of a listed company, any significant event occurring at the level of the JV will need to be disclosed as part of the listed company’s disclosure.

Transactions With Specially Related Parties

According to the KCC, a listed company is generally prohibited from engaging in lending, providing guarantees or extending credit to or for the benefit of its “specially related parties”. Furthermore, a listed company’s transaction with its specially related party must be approved by the board of directors if (i) the value of a single transaction equals or exceeds 1% of the company’s total assets or total sales as of the end of the most recent fiscal year, or (ii) the aggregate amount of transactions with a particular counterparty during the fiscal year, including the relevant transaction, equals or exceeds 5% of the company’s total assets or total sales as of the end of the most recent fiscal year.

In the case of a company belonging to a business group subject to public disclosure under the MRFTA (ie, with total assets of KRW5 trillion or more), the shareholding of the member by the other members of the company group must be disclosed. Where a member of such company group participates in a JV, and the JV becomes a member of the company group, the person of significant control (PSC)/ultimate beneficial owner (UBO) of the JV may also need to be disclosed.

Furthermore, although not a public disclosure, the PSC/UBO may be submitted to a foreign investment authority in South Korea as part of the application for foreign investment filings (under the FIPA or FETA, as the case may be).

In addition, the amendment to the Capital Markets Act in 2024 introduced a prior disclosure requirement of share transfers by officers or major shareholders (holder of 10% or more of the total equity securities with voting rights or person who has a de facto influence over management of the company) of a listed company. Per this amendment, major shareholders and officers intending to trade securities issued by a listed company in excess of a certain threshold volume (the aggregate volume and amount of securities traded over the past six months is less than 1% of the total issued and outstanding shares and less than KRW5 billion) are required to disclose relevant information, such as the purpose of trade, price, quantity and transaction period, prior to the expected trade date.

Amendment of the KCC

The key provisions of the KCC amendments passed by the National Assembly in a plenary session on 3 July 2025 and promulgated on 22 July 2025, are as follows:

• Expansion of fiduciary duties of directors (effective from 22 July 2025) – previously, under the KCC, a director owed their fiduciary duties to the company. The recent amendment expands the scope of this duty to the company and its shareholders. As a result, directors of a JV must also take into account the interests of the shareholders – not only those of the shareholder that nominated them.
• Obligation to hold virtual general meetings of shareholders (effective from 1 January 2027) – under the current KCC, the venue for a general meeting of shareholders has been interpreted as requiring a physical location. The amendment introduces specific provisions on electronic shareholder meetings, allowing listed companies to convene such meetings concurrently with in-person meetings held at the designated venue. For listed companies exceeding a certain size threshold, the concurrent holding of electronic shareholder meetings will become mandatory.
• Adoption of independent directors (effective from 23 July 2026) – previously, both non-listed and listed companies could appoint outside directors if necessary. However, (i) in the case of listed companies with total assets less than KRW2 trillion, at least one quarter of the total number of directors had to be outside directors, and (ii) in the case of listed companies with total assets of KRW2 trillion or more, at least three outside directors had to be appointed and outside directors had to constitute the majority of the board of directors. The amendment introduces the concept of “independent directors” in place of outside directors for listed companies, and increases the minimum required proportion of independent directors to at least one third of the total number of directors (currently one quarter is the minimum requirement for listed companies with total assets of less than KRW2 trillion). An “independent director” refers to an outside director who performs their duties independently from inside directors, executive officers, and persons who give instructions regarding the execution of business.
• Expansion of “3% rule” (effective from 23 July 2026) – previously, where the largest shareholder held more than 3% of the issued shares, any voting rights in excess of 3% – including those held by related parties – could not be exercised in the appointment or dismissal of audit committee members who were not outside directors (the so-called “3% rule”). The amendment expands the application of this 3% rule by providing that, regardless of whether an audit committee member is an outside director, the aggregate voting rights of the largest shareholder and its related parties in excess of 3% cannot be exercised in the appointment or removal of any audit committee member.

The following documents are used during the negotiating stage of a JV:

• Due diligence questionnaire (DDQ) – although not as widely used in buyout transactions, DDQs are employed when due diligence is required in respect of any particular assets to be contributed by the JV partner and/or the JV partner itself; DDQs are typically used in JV transactions where one partner is contributing assets, IP or know-how, and the other partner is contributing cash.
• Term sheet – this is customarily used in the pre-negotiating stage of a JV.
• Mutual non-disclosure agreement – this is customarily used in the pre-negotiating stage of a JV. It is often combined with the term sheet, where the term sheet sets out the parties’ confidentiality obligations. Where the JV parties are engaged in competing businesses, it is also a common practice to implement a clean team arrangement.
• Exclusivity agreement – this is customarily used in the pre-negotiating stage of a JV. It is often combined with the term sheet, where the term sheet sets out the exclusivity arrangement between the parties as a binding obligation.

The term sheet is often the key document used during the negotiating stage of a JV. The term sheet typically sets out:

• the key commercial terms;
• exclusivity (if any) and/or confidentiality obligations; and
• key corporate matters such as ownership, governance/management, transfer restrictions, exit rights, etc.

According to the KRX Disclosure Rule, when a KOSPI-listed company, as a participant in a JV, invests an amount exceeding 5% of its equity (or 2.5% for Large Corporations), or when a KOSDAQ-listed company invests an amount exceeding 10% of its equity (or 5% for Large Corporations), the company must disclose this investment on the date of the decision to participate in the JV (ie, the board of directors’ approval).

Furthermore, when a company that belongs to a business group subject to disclosure requirements (with total assets of KRW5 trillion or more) invests an amount that meets or exceeds the lower of (i) KRW10 billion, or (ii) 5% of the larger of the company’s total equity or stated capital (with a minimum threshold of KRW500 million) as a JV participant, it must disclose this investment within seven days (in the case of an unlisted company) or three days (in the case of a listed company) from the date of the decision to participate in the JV.

The conditions precedent to obligation to subscribe for shares typically envisaged in JV agreements include the following:

• to perform and comply with all covenants, agreements and conditions required by the JV agreements;
• representations and warranties to be true and correct as of the closing date;
• no order, injunction, decision or ruling that disallows, challenges, enjoins, prohibits or imposes any damages, penalties or restrictions on the closing; and
• all required government approvals, authorisations, consents, approvals and waivers have been obtained (this clause is particularly important when there is a foreign JV partner in the transaction).

Generally, the conditions precedent apply to all of the joint-venture parties.

While material adverse change clauses are occasionally discussed, the force majeure clauses are rarely negotiated in JV transactions, except in transactions involving contribution of assets by one JV partner.

As previously noted, chusik hoesa is the most commonly used form of JV vehicle in South Korea; as such, the issues relating to the setting up of a JV vehicle as a chusik hoesa are detailed here.

A JV vehicle can be:

• incorporated by one of the JV participants (usually the South Korean participant), with the other JV participants(s) subsequently joining the JV vehicle as shareholder(s), and where the other JV participant(s) – to the extent that they acquire 20% or more of shares in the JV vehicle – will be responsible for the business combination report; or
• incorporated jointly by the JV participants, where the largest shareholder of the JV vehicle will be responsible for the business combination report.

If any JV participant is a large company with worldwide assets or annual revenue of KRW2 trillion or more, the business combination report clearance will be required prior to:

• acquisition of shares in the JV vehicle by that JV participant (in the case of the first point in the earlier part of this section); or
• incorporation of the JV vehicle (in the case of the second point in the earlier part of this section).

For a foreign JV participant to acquire shares in the JV vehicle, it must submit a foreign investment filing before it can make payment of the capital contribution.

Upon receipt of the approval for the foreign investment and certain basic procedures for company incorporation (including the adoption of articles of incorporation, and designation of directors and the representative director), the JV may be established, and the approved amount of foreign investment can be paid into the JV.

After completion of the foregoing, the JV and its officers (ie, the directors, statutory auditor – if any – and representative director) will be registered with the local district court in the jurisdiction where the head office is located. Upon completion of the court registration, the new company will legally come into existence.

Under the KCC, there is no minimum capital requirement for chusik hoesa. However, the par value of a share must be at least KRW100. Accordingly, it is legally permissible to establish a chusik hoesa with a capital of KRW100 by issuing a single share with a par value of KRW100.

A JV vehicle in Korea is, in most cases, incorporated as a joint-stock company (chusik hoesa), although a limited liability company (yuhan hoesa) is sometimes used for a JV vehicle in limited matters.

The terms of the JV documents for both chusik hoesa and yuhan hoesa are similar. The JV agreement will include the customary terms regarding the management and operation of the JV (ownership structure, management structure, and consent/veto rights), transfer restrictions (right of first refusal/offer, drag/tag-along, etc), exit rights (eg, call, put right) and other commercial arrangements between the parties, among others.

Some of the terms of the JV are also reflected in the articles of incorporation of the JV vehicle. Such terms include:

• certain matters relating to management structure (eg, number of directors, term of the directors, etc);
• quorum and voting requirements (including board of directors’ and shareholders’ reserved matters);
• transfer restrictions;
• matters relating to stock options and preferred shares; and
• establishment of sub-committees.

Decision-making is typically split among:

• representative directors;
• the board of directors; and
• shareholders.

The JV agreement will typically set out the matters that can be decided by executive officers, directors and shareholders.

Furthermore, different quorum/voting requirements are typically stipulated in the JV agreement and/or the articles of incorporation of the JV.

Representative Directors’ Decision-Making

The representative director is the legal representative of the company, and is given broad authority to represent and legally bind the company in its day-to-day operations.

Board of Directors’ Decision-Making

The board of directors is given the authority to decide any material matter pertaining to the company (except for those matters that are, by law or by the articles of incorporation, required to be approved by the shareholders).

The board of directors’ decision-making is, in principle, subject to the simple majority vote (ie, the majority of the directors attending the board of directors’ meeting plus the majority of the attending directors’ affirmative vote). Higher quorum/voting requirements can be required by law or set forth in the articles of incorporation.

“Casting votes” are not permitted under the KCC.

Shareholders’ Decision-Making

The KCC sets out applicable voting requirements for certain matters (subject to either “ordinary resolution”, “special resolution” or “unanimous resolution” by the shareholders). While JV participants can agree to higher voting requirements than as set out in the KCC, as a matter of law the requirements cannot be relaxed.

“Ordinary resolution” means an affirmative vote (whether in person or by proxy) of a majority of the voting shares represented at such meeting, where the vote shall also account for at least one quarter of the total issued and outstanding voting shares of the company.

“Special resolution” means an affirmative vote (whether in person or by proxy) of at least two thirds of the voting shares represented at such meeting, where the vote shall also account for at least one third of the total issued and outstanding voting shares of the company.

The matter of decision-making in the context of a JV depends largely on the ownership structure (eg, 50:50 or majority:minority shareholders) and other commercial considerations. Within the statutory requirements described in the foregoing, the JV participants may freely negotiate and agree on the decision-making mechanisms for a JV.

Funding arrangements for a JV are primarily depend on the JV participants’ commercial needs and understanding. The typical arrangements in South Korea are as follows.

Equity Contribution

This is the most common funding arrangement. The JV participants will make equity contributions to the JV at the onset, with the understanding/agreement that if further funding is necessary, the JV participants will make equity contributions on a pro rata basis. Such future contributions can be made an obligation of the JV participants, or an option (in which case, if a JV participant elects not to make additional capital contributions, its shareholding ratio will be reduced accordingly).

Because of the potential change of shareholding ratios, matters relating to obligations/options for future equity contributions are usually heavily negotiated, including how it will be decided that further funding is in fact necessary. Without a detailed clause on this topic, a JV partner could later find it difficult to force an unwilling JV partner to contribute its pro rata portion, particularly when such unwilling JV partner is wishing to exit the JV and the company needs additional capital injection for future operations.

Mix of Debt and Equity

This arrangement is also quite common. The debt can be shareholders’ loans (including ones made by one or some of the JV participants or by all of the JV participants on a pro rata basis) or third-party financing (which may also involve a guarantee by the shareholders, usually on a pro rata basis).

Deadlocks in South Korea are dealt with in a way that is in line with how they are typically dealt with in global practice – ie, in a way that:

• maintains the JV; or
• terminates the JV.

If the JV is to be maintained in a deadlock situation, the typical process will involve first attempting to amicably resolve the deadlock (eg, escalation to a higher governing body/shareholders). If not resolved:

• such deadlock matter would be presumed disapproved;
• a casting vote would be granted to either JV partner; or
• the deadlock matter would be referred to a third-party mediator.

As a “casting vote” is not permitted as a matter of corporate law, such procedure would have to be implemented as a contractual arrangement where a JV partner is contractually obligated to vote in line with the JV partner that is given the “casting vote”. The authors note that the use of third-party mediators is extremely rare in South Korea.

If the JV is to be terminated, the typical mechanism will involve use of put/call options. The details of such an arrangement (whether either/both JV partner(s) will be granted put/call options, how the put/call price will be determined, etc) will be a matter of commercial negotiation between the JV partners. It is also not uncommon for a continuing deadlock to constitute a ground for dissolution and liquidation of the JV (where there is no put/call arrangement in place, or where there is a deadlock regarding which JV partner will sell – or purchase – the shares of the other JV partner). From a regulatory perspective, put/call options held by foreign investors will require foreign exchange filing with the Bank of Korea unless the agreed put/call price is at or within a certain range of fair market value, and this filing requirement is subject to Bank of Korea practice, which needs to be checked before filing.

In addition to the JV agreement, a wide array of documents may be required in connection with a JV transaction.

For typical manufacturing JVs, agreements for providing the necessary resources for manufacturing activities of the JV (such as a licence agreement, technical assistance agreement, supply agreement and secondment agreement) are executed in addition to the JV agreement.

IP licence/assignment agreements are often entered into between one or more of the JV partners and the JV, particularly when IPs of either or both JV partners are necessary or desirable for the purpose of the JV. Trade mark licence agreements are also common, as it is often the case that the JV will use the trade mark of either or both of the JV partners as part of its own trade mark or in connection with its business operations. Transactions involving the transfer of key employees may also involve employment agreements.

For JVs other than manufacturing JVs (financial, IT platform, entertainment, etc), more industry-specific agreements are typically considered. For non-manufacturing JVs, no particular agreement is generally required in South Korea.

Rights and Obligations of the Joint Venture Parties

Key rights

• board composition (appointment of directors and statutory auditors);
• financial reporting;
• distribution of earnings through dividends;
• right of first refusal/offer; and
• tag-along rights.

Key obligations

• capital contribution;
• transfer restriction;
• non-compete;
• non-solicitation; and
• confidentiality.

Distribution of earnings

Typically, JV agreements explicitly provide that the adoption and amendment of a dividend policy require the board’s approval, and earnings of the JV company are distributed to the JV partners based on the dividend policy.

Dividends must be paid within the limits of distributable profits as defined under the KCC. Distributable profits are calculated as the net assets of the company, minus the capital, legal reserves, earned surplus reserves, and unrealised gains. Dividend payment requires approval of the financial statements at the annual general meeting of shareholders. If the financial statements are approved by the board of directors (in cases set forth in the articles of incorporation), payment of dividend requires the board resolution.

An interim dividend refers to a distribution of a portion of profits to shareholders during the fiscal year. Unlike year-end dividends, which are resolved at the general meeting of shareholders, interim dividends are approved by resolution of the board of directors, and are only permitted if the articles of incorporation explicitly authorise such distributions.

Debts and Obligations of the Joint Venture

A chusik hoesa is a separate legal entity independent from its shareholders, and as a general rule, shareholders are not personally liable for the company’s debts or obligations. A shareholder is only obliged to contribute to the company up to the amount of the shares that the shareholder has subscribed to, and bears no further personal liability. Of course, if a shareholder separately agrees to guarantee the company’s obligations, a shareholder may be held liable under such guarantee agreement.

That said, the Korean Supreme Court recognises the doctrine of piercing the corporate veil, and has held the controlling individual personally liable and disregarded a company’s separate legal personality in exceptional cases where the company, in substance, is nothing more than a sole proprietorship of the individual behind the corporate entity, or where the corporate form is abusively used as a device to evade legal obligations.

Since the governance of a JV company is primarily determined by the shareholding ratio, a minority shareholder with only a limited equity stake may seek to enhance its influence through various structural mechanisms.

Minority shareholders seek to obtain veto rights over key operational decisions. Such veto rights are typically structured to prevent the majority shareholders from exercising certain powers unless consent is obtained from a director nominated by the minority shareholders. In addition to board reserved matters, it is also common to include similar provisions with respect to the shareholders’ meetings in order to protect the interests of minority shareholders.

In most JVs, the minority party does not appoint the representative director, and would seek to limit the scope of matters that can be decided by the representative director. Parties can decide that certain specified key matters will be escalated to the board of directors, with veto rights granted to the director(s) nominated by the minority party over critical matters such as the acquisition and disposition of material assets, incurrence of indebtedness in excess of a certain amount, and changes to the governance structure. This approach allows a certain degree of control despite minority ownership.

As the largest shareholder typically retains the right to appoint the representative director and a majority of the board, minority shareholders often seek to ensure adequate oversight by securing the right to appoint a statutory auditor or CFO to monitor the board and financial affairs.

A minority shareholder with limited bargaining power is often in a vulnerable position when seeking to exit from the JV company, particularly in situations involving deteriorating financial performance of the JV company or a breakdown in the relationship with the majority shareholder. To safeguard the ability to recover its investment, certain protective mechanisms may be adopted, including:

• a tag-along right, which entitles the minority shareholder to sell its shares to a third party on the same terms and conditions if the majority shareholder intends to transfer its stake; or
• a put option, whereby the majority shareholder is contractually obliged to purchase the minority shareholder’s stake at a pre-agreed or negotiated price upon exercise of the option.

Choice of Governing Law and Dispute Resolution

The choice of governing law and dispute resolution mechanism in a JV agreement is typically influenced by the relative bargaining power of the parties. Cost-efficiency and procedural expediency are also key considerations, and parties often designate the law and courts or arbitral institutions of the jurisdiction where the JV company is established.

In South Korea, available alternative dispute resolution (ADR) mechanisms include court-annexed mediation, as well as mediation and arbitration administered by the Korean Commercial Arbitration Board (KCAB). However, there are no mandatory ADR procedures under South Korean law in general. South Korea is a signatory to the 1958 New York Convention, and as such, foreign arbitral awards are generally enforceable by South Korean courts.

Enforceability of Foreign Judgments and Arbitral Awards

Under Article 217 of the Korean Civil Procedure Act, a foreign court judgment may be enforced in South Korea if the following conditions are met:

• the foreign court has international jurisdiction under South Korean law or applicable international treaties;
• the defendant was duly served with the complaint in a manner that afforded sufficient time to prepare a defence;
• recognition of the judgment does not violate South Korean public policy or good morals; and
• there is reciprocity, meaning that the foreign jurisdiction would similarly recognise South Korean court judgments on substantially the same basis.

As a signatory to the 1958 New York Convention, South Korea recognises and enforces foreign arbitral awards rendered in other contracting states in accordance with the Korean Arbitration Act. For arbitral awards rendered in jurisdictions not covered by the New York Convention, enforcement is still possible under South Korean law. In such cases, the general requirements for the recognition of foreign judgments under Article 217 of the Civil Procedure Act would apply, and the award must first be recognised by a South Korean court before it can be enforced through execution proceedings.

The decision-making of a board of directors is, in principle, subject to the simple majority vote (ie, the majority of the directors attending the board of directors’ meeting plus the majority of the attending directors’ affirmative vote). Higher quorum/voting requirements may be set out in the articles of incorporation and/or joint-venture agreement.

Depending on the shareholding structure, a majority shareholder will often seek the right to designate the majority of the board of directors; whereas a minority shareholder will often seek to ensure that the key decision-making is subject to higher quorum/voting requirements in the articles of incorporation (ie, veto right).

Weighted voting is not recognised in South Korea. However, under the Act on Special Measures for the Promotion of Venture Businesses (Venture Business Act), in cases where the founder’s shareholding with voting rights falls below 30%, or where the founder ceases to be the largest shareholder, as a result of external capital raising exceeding a certain threshold, an unlisted venture company may issue dual-class shares granting up to ten voting rights per share to the founder.

Directors may neither participate nor vote at a board of directors’ meeting by proxy. However, participation through an audio/video conference is allowed (unless prohibited by the articles of incorporation).

Under the KCC, a director of a company is considered to be an agent of the company with two primary categories of duties:

• the duties of a good faith caretaker towards the company (“duty of care”); and
• the duty to act in good faith in the interests of the company in compliance with relevant laws and the company’s articles of incorporation (“duty of loyalty”).

Specifically, the duty of care and duty of loyalty, collectively referred to as the “fiduciary duties”, also include following:

• duty of confidentiality;
• duty of non-competition;
• duty against usurpation of corporate opportunities and assets;
• duty against self-dealing;
• duty to prepare financial statements, etc; and
• duty to report (to the statutory auditor any fact that may have a material adverse effect on the company).

Furthermore, South Korean court precedents have adopted the “Business Judgement Rule”, where a director is deemed to have discharged their duty of care even if such decision results in loss or damage to the company, if:

• the director has sufficiently, to the extent reasonably available, collected, investigated and examined the necessary and appropriate information;
• the director reasonably believed that the decision was in the best interests of the company;
• the director reached the decision in good faith following due process; and
• the decision itself or the decision-making process was not significantly unreasonable.

Other than in specific industries (eg, the financial industry) where a dual role (as an officer of the parent/subsidiary) is prohibited, a person is generally permitted to take a seat on a JV company board while also taking a position as a JV participant.

Notably, where a director/officer of a large company with worldwide assets or annual revenue of KRW2 trillion or more takes a seat on another company’s board, a business combination report may be required between the two companies.

From a conflict-of-interests perspective, directors have a duty against self-dealing – ie, a director may not enter into a transaction with the company on their own account or on account of a third party, without the super-majority approval of the board (two thirds or more of all incumbent directors). Under the KCC, the prohibition on self-dealing has been expanded to cover major shareholders (ownership of 10% or more) and certain related parties. As a result, the covered parties are required to notify the board of such transaction and must obtain the super-majority approval of the incumbent directors. In addition, the transaction and its process must be fair and at arm’s length. Furthermore, under South Korean case law, if an individual concurrently serves as the representative director of both companies, any transaction between the two companies is deemed to constitute self-dealing. Accordingly, if the representative director of a JV participant also serves as the representative director of the JV, any transaction between the JV and the participant would be subject to the self-dealing requirements.

If a director has a personal conflict of interest in respect of any matter subject to the board of directors’ approval (eg, approval of remunerations payable to such director), the director will not be entitled to exercise their voting right in respect of such matter.

Some of the key IP issues that should be considered when setting up a JV and in relation to a contractual collaboration are as follows:

• scope of the IPs to be assigned, licensed or disclosed to the JV;
• scope of the IPs to be disclosed to the other JV partner;
• whether the scope of the IPs to be assigned or licensed must be expanded as the relevant JV partner (who assigned or licensed the relevant IPs) develops similar or improved IPs;
• who will own the derivative IPs (improvements, etc);
• whether the JV and/or relevant JV partner (if not given the ownership of the derivative IPs) will be given a licence to use such IPs;
• whether any warranty will be given in respect of the IPs being licensed/assigned;
• whether the JV partners will be subject to any non-solicitation obligations in respect of the employees of the JV;
• whether the employees of the JV will be subject to any non-compete obligations; and
• work-for-hire clauses, where the JV will be required to appropriately compensate the relevant employee for the inventions.

How IP Issues Are Usually Dealt With in the JV Agreement

There is no “market” practice in relation to how IP issues are dealt with in the JV agreement. Regarding ownership of the derivative IPs, although there are cases where the JV and the relevant JV partner agree on co-ownership of such IPs, it is more typical in practice for such IPs to be owned by the JV. It should be noted that either the JV or the JV partner will be able to freely use the relevant IPs under the co-ownership arrangement, but the other co-owner’s consent is required for the relevant IPs to be assigned or licensed to any third party.

The JV partner that has assigned/licensed any IP to the JV may wish to seek a provision that requires, to the extent possible, that the JVC sell or make in-kind distribution of the assigned IPs, derivative IPs and other assets containing the relevant IPs to the JV partner that assigned/licensed the relevant IPs if it wishes to ensure that the IPs are not transferred to any third party.

Specific Considerations for the Transfer of Intellectual Property to or from Foreign Entities

The transfer of intellectual property to foreign entities that may pose a threat to the national security of South Korea (in particular, any investment that might hinder the manufacture/production of defence materials, might pose a risk of leakage of state secrets and/or National Core Technology, etc) may be prohibited or restricted by the MOTIE upon review of the foreign investment committee.

From the IP owner’s perspective, licensing the IP to the JV is strategically beneficial as assignment of IPs requires registration and recovering IP ownership is often difficult, even with an agreement for purchase-back of the IP rights.

Partial assignment is not recommended, as co-ownership of IPs may restrict certain uses of the relevant IPs (consent is required for any transfer or licensing of the IPs from the assignee).

From the JV’s perspective, assignment of IPs is recommended as the licence to use the relevant IPs may be unenforceable in the event that the underlying IPs are assigned/transferred to a third party (unless the third party agrees to and acknowledges the validity of the licence), and the JV should register the licence for the relevant IPs.

ESG has become a salient issue in South Korea as the country continues to make efforts towards conforming to global standards and improving its presence and influence in global discussions. Furthermore, certain global ESG requirements such as RE100 have rapidly become a real issue for South Korean companies’ overseas business operations (particularly in the USA and the EU).

In early 2023, the Ministry of Environment issued a correction order to a South Korean company regarding an allegedly false advertisement, where one of its products was advertised as being carbon-neutral when, in reality, only some of the product’s carbon footprint had been neutralised by the carbon emission rights purchased by the company in the market. This was among the first administrative sanctions imposed on the advertising of petrol products as carbon-neutral products.

In 2021, the Supreme Court ruled that the representative director of a company is liable for damages in connection with their lack of knowledge about the company’s concerted behaviour. This is recognised by the market as the South Korean judiciary’s steps towards more developed ESG practice.

Furthermore, the Financial Services Commission has announced its plans to require a company group with assets of over KRW2 trillion to issue sustainability reports. While sustainability reporting is conducted on a voluntary basis under the current regulatory scheme, the authors are witnessing a steady increase of companies opting to publish such reports, in recent years.

The South Korean Congress is also contemplating the introduction of various ESG-related laws (requirements for human rights and environment/supply chain due diligence, etc).

Namely, the Carbon Dioxide Capture, Usage and Storage Act (CCUS ACT) was passed on 9 January 2024 and took effect from 7 February 2025. Although CCUS technology is globally recognised as a bridge technology for achieving carbon neutrality by 2050, CCUS-related regulations were dispersed across more than 40 different laws, and captured carbon dioxide was considered as waste under the Waste Management Act. Business entities seeking new business opportunities in the CCUS industry should closely observe the changes in the business landscape following the implementation of the CCUS Act.

Moreover, the Serious Accident Punishment Act (SAPA), which was enforced only against corporations with at least 50 or more employees for the past two-year grace period, has also been expanded to be applicable to small-sized businesses (businesses with five to 49 regular employees) since 27 January 2024. The expansion of scope of SAPA enforcement requires all businesses with fewer than 50 employees to establish and implement SAPA-compliant safety/health management systems.

JV arrangements typically start with an indefinite term, and termination of a JV occurs when:

• there is a material breach of the JV agreement(s);
• a deadlock event occurs; or
• a JV partner sells its shares to the other JV partner or to a third-party purchaser.

JV arrangements usually come to an end in one of the following ways:

• the JV entity is dissolved and liquidated, with the residual assets being distributed to the JV partners; or
• a JV partner acquires the shares in the JV held by the other JV partner (either through the exercise of a put/call option, or by mutual agreement).

The following matters should be carefully considered for termination of a JV.

• The scope and duration of the non-compete/non-solicitation obligations.
• Where a put/call arrangement is contemplated in connection with termination of the JV:
1. the applicable exercise price; and
2. if fair market value will be used, whether it will be determined by a third-party appraiser or by mutual agreement, etc.
• Where the JV is being liquidated and if there is any IP assigned to the JV by one of the JV partners, whether the JV partner will be able to acquire back such IP (including any derivative IPs). The same applies if there is any important asset that was leased/transferred to the JV by one of the JV partners.
• Where one JV partner acquires the shares in the JV held by the other JV partner, and if there is any IP assigned/licensed or key assets loaned/transferred to the JV by the exiting JV partner, whether the JV will continue to be able to use such IP or key assets in its business operations (and if so, under what terms).
• Furthermore, where the JV will continue with a JV partner as the sole shareholder, the allocation of risks regarding liabilities that have or will accrue as a result of the JV’s actions prior to its termination.

If a JV participant will contribute assets to the JV by way of in-kind contribution, an appraisal by an independent appraiser (typically an accounting firm or appraisal firm) must be obtained, and the appraisal will be subject to the court’s approval.

If the JV will transfer its assets (regardless of whether they are contributed to the JV or originate from the JV) with cash consideration, no such appraisal/court approval (as described in the foregoing) is necessary. However, if the transferee holds at least 10% or more of the total issued and outstanding shares of the JV, the transfer of assets will constitute a “self-dealing” under the KCC, and such transfer will be subject to two-thirds approval of the board of directors.

Particular caution is necessary to ensure that transfer of assets between a JV and JV partners is made under arm’s length terms and conditions. If the transfer is carried out at a price (or under the terms and conditions) that is not at arm’s length, such transfer could constitute a breach of fiduciary duty issues for directors and/or have tax implications for both the JV and the JV partner.

Share Transfer Restriction

Under the KCC, transfer of shares may only be restricted by requiring prior approval of the board of directors. The company’s articles of incorporation must expressly provide for such requirement and any other form of restriction (other than board approval) is not permitted. To ensure the shareholders’ ability to recover invested capital, the KCC also provides that if the board refuses to approve a proposed transfer, the shareholder who receives the notice of refusal may demand that the company designate an alternative transferee or purchase the shares.

Restrictions on the transfer of shares may also be agreed upon among shareholders through a JV agreement or shareholders’ agreement (rather than through the company’s articles of incorporation). A restriction on share transfer imposed under agreements among the shareholders is binding only among the contracting parties and does not affect third parties. Accordingly, if a share transfer is made in violation of such an agreement, the transfer remains valid in principle, despite any breach of contractual obligations between the parties.

Other than the above, exit strategy is generally a matter that parties can freely determine in the JV agreement.

Most Common JV Exits

A separate agreement between JV partners allowing one party to exit is the most common JV exit strategy in South Korea. Typical exit mechanisms include the following:

• termination by mutual agreement;
• tag-along rights;
• qualified initial public offering; and
• put/call options.