South Korea operates under a civil law system, where laws are codified in statutes. The legal framework is based on the following separation of powers:

• the legislative branch, the National Assembly, which enacts statutes;
• the executive branch, led by the President and government agencies, which enforces laws; and
• the judicial branch, which includes the Supreme Court as the highest appellate body and various lower courts. Additionally, the Constitutional Court independently conducts constitutional reviews and oversees impeachment cases.

This structure ensures a well-defined regulatory environment for businesses operating within South Korea.

Foreign direct investment (FDI) in South Korea is subject to regulatory oversight primarily through reporting obligations under the Foreign Investment Promotion Act (the “FIPA”), overseen by the Ministry of Trade, Industry, and Energy (the “MOTIE”), and the Foreign Exchange Transaction Act (the “FETA”), administered by the Ministry of Economy and Finance.

Under the FIPA, foreign investment in Korean companies is generally permitted, except where it may impact national security, public health, public order, environmental protection, or contravene Korean laws. The Industrial Technology Protection Act (the “ITPA”) further restricts foreign acquisitions involving certain technologies designated as national core technologies. Specifically, if a foreign investor seeks to acquire 50% or more of shares or effective control of a Korean company or its business holding a national core technology, prior approval or reporting to the MOTIE is required.

Specific industries, including defence and finance, are subject to additional scrutiny and sector-specific regulations.

Economic, Political, and Business Climate in South Korea: 2024 Overview and FDI Outlook

South Korea’s economic and business climate in 2024 reflects a mixed picture with a promising outlook for inbound FDI. The M&A market faced a slight downturn in the first half of the year. However, it has shown signs of recovery in the latter half, with high-profile deals fuelling growth. Large conglomerates continue to restructure, consolidating business units to concentrate on core areas, which is expected to sustain M&A demand. Private equity (PE) firms remain particularly active, spurred by capital deployment needs and exit opportunities, positioning themselves as significant players in the M&A landscape.

In 2024, there has been a notable rise in delistings through public tender offers, especially by PE firms. This trend has been one of the factors that led to a wider emphasis on protecting minority shareholders, reflecting public sentiment that undervaluation in the Korean stock market is partly due to minority shareholder mistreatment. Responding to these concerns, recent reforms aim to improve minority shareholder protections, particularly for listed companies.

A recent high-profile regulatory intervention involved a merger between affiliated listed companies, sparking widespread criticism due to perceived favouritism toward majority shareholders. Doosan Enerbility’s attempt to transfer its subsidiary, Doosan Bobcat, to Doosan Robotics through a spin-off merger and comprehensive share exchange faced scrutiny over the perceived unfairness of the exchange ratio. The Financial Supervisory Service (the “FSS”) intervened by declining approval for the necessary securities registration statement, leading to the cancellation of the share exchange and delays in the merger process.

Another noteworthy development involved a takeover attempt of Korea Zinc by MBK Partners, a PE firm, in collaboration with Korea Zinc’s largest shareholder. MBK and the largest shareholder together hold the largest stake but management has retained control through friendly shares. This takeover bid has raised questions about whether hostile takeovers could become a trend in Korea’s PE-driven M&A market.

In terms of regulatory developments, as of 14 December 2023, South Korea abolished the requirement for foreign investors to register with the FSS before acquiring shares in listed companies, simplifying FDI entry. Additionally, on 4 July 2023, prior notification requirements for certain capital transactions to foreign exchange banks were significantly reduced, although reporting obligations under the FIPA remain in place.

Looking ahead, South Korea’s focus on minority shareholder protections, coupled with a streamlined regulatory framework for FDI, suggests an increasingly stable and attractive environment for inbound investors. These recent regulatory shifts, coupled with market dynamics, position South Korea as a competitive and evolving destination for foreign investment.

Common Transaction Structures in South Korea

In South Korea, common M&A structures include:

• share transfers;
• business transfers;
• mergers or consolidations;
• asset transfers;
• joint ventures (JVs);
• share subscriptions; and
• other forms like share swaps and corporate splits.

According to the Korea Fair Trade Commission’s (the “KFTC”) 2023 data, among the transactions for which merger filing combination reports have been made to the KFTC, share transfers, including purchases and subscriptions, accounted for 30.2% of filings, JV formations for 21.7%, mergers for 21.3%, and business transfers for 10%. Share transfers are the most widely used structure for acquisitions, with mergers more common among affiliated companies.

Public v Private Company Acquisitions

There are no major structural differences between acquiring control of public and private companies. However, a proposed mandatory tender offer rule, still under discussion, could require acquirers of 25% or more of a listed company’s shares to make a mandatory tender offer to obtain certain minimum shareholdings of a listed company in addition to acquiring sale shares through a private sale. This rule has not yet been codified but could affect future transaction structures.

Key Considerations for Foreign Investors

Foreign investors should consider the following factors when selecting a transaction structure.

• Tax structuring: careful planning can optimise tax efficiency for the investor’s specific circumstances.
• FIPA eligibility: confirming eligibility under the FIPA can unlock potential tax incentives and regulatory benefits.
• Foreign exchange compliance: where the FIPA is not applicable, compliance with the FETA, which mandates reporting based on a transaction’s nature and structure, is crucial. Failure to report could restrict outbound currency remittance.
• Sector-specific restrictions: certain industries limit foreign ownership or impose additional regulations, directly impacting transaction structure choices.
• Regulatory approvals: specific sectors, particularly finance, require regulatory approval for foreign acquisitions, with standards differing from those for domestic investors, especially when significant stakes are involved.

Control Acquisitions v Minority Investments

Share transfers are preferred for control buyouts, while JVs and share subscriptions are common for minority investments. These structures suit foreign investors seeking strategic partnerships or limited ownership for market entry. Asset and business transfers are also commonly used for broader corporate restructuring or reorganisation.

Additional Regulatory Approvals for Domestic M&A Transactions

Foreign investors considering M&A transactions in South Korea should be aware of regulatory review and reporting requirements beyond FDI regulations, including antitrust and securities filings. This includes the following.

• Antitrust and competition review: acquiring the shares or business of a South Korean company may require a merger filing with KFTC under the Monopoly Regulation and Fair Trade Act (the “MRFTA”) (see 6. Antitrust/Competition). Merger filings are mandatory if the transaction meets specific asset or revenue thresholds, aiming to prevent anti-competitive market concentration.
• Securities reporting for public companies: for public company investments, securities regulations mandate disclosure filings based on shareholding thresholds. Investors must file a substantial shareholding report at the 5% threshold and an additional report at 10% ownership. These requirements promote transparency in shareholder activity for publicly listed companies.

Overview of Corporate Governance and Entity Forms in South Korea

The two primary legal structures for corporate entities are a joint stock company (jusik hoesa) and a limited company (yuhan hoesa). Each have their own distinct governance requirements as follows.

• Joint stock company (jusik hoesa): this structure is most common for larger businesses and required for all public companies. It mandates a board of directors, an internal auditor or audit committee and shareholder meetings. The board oversees major decisions, while a representative director manages daily operations. Shareholders enjoy limited liability, and the company has flexibility in issuing stock options, convertible shares, and bonds, which are key advantages for raising capital.
• Limited company (yuhan hoesa): typically used by smaller or close companies, this structure offers operational flexibility without requiring a board or internal auditor. However, it cannot issue stock options, convertible shares, or bonds, which limits financing options. Like a jusik hoesa, shareholders’ liability is limited, but governance requirements are less complex, making it suitable for smaller entities.

Key Considerations for Foreign Investors

Foreign investors should consider the following when selecting a corporate structure.

• Governance and control: a jusik hoesa provides a more formal governance framework, suitable for investors needing clear oversight mechanisms and roles.
• Operational flexibility: a yuhan hoesa provides flexibility for smaller or family-owned investments but is less ideal for larger-scale operations requiring sophisticated capital options.
• Capital structure: a jusik hoesa’s ability to issue various securities with conversion/redemption rights allows greater flexibility for financing, while a yuhan hoesa’s restrictions could affect capital-raising strategies.

Selecting between a jusik hoesa and a yuhan hoesa depends on an investor’s priorities for governance, operational complexity, and capital flexibility, enabling foreign investors to align the entity structure with investment goals.

Under the Korean Commercial Code (the “KCC”), except under certain situations where non-equitable treatment is permitted, all shareholders must be treated equitably in proportion to their shareholdings, based on the principle of shareholder equality. Any agreement granting preferential rights or benefits to specific shareholders, without justification, is generally deemed invalid.

Minority shareholders are afforded several key protections, including rights to inspect financial records, propose agenda items for shareholder meetings, and initiate derivative lawsuits against directors. Major corporate actions such as mergers or amendments to the articles of incorporation require enhanced voting thresholds, ensuring minority input on significant decisions. Dissenting shareholders are also granted appraisal rights in cases involving mergers, spin-offs, comprehensive share swaps or transfers of substantial business assets, allowing them to seek fair value for their shares.

South Korea imposes no additional FDI-specific disclosure requirements on foreign investors. However, shareholders of public companies are subject to ownership-based disclosure obligations, with thresholds triggering reporting requirements (eg, 5% and 10%). For private companies, disclosures are governed by the Act on External Audit of Stock Companies, which mandates financial statement and audit report disclosures for companies meeting specific thresholds. Disclosure is required if a company is either:

• a stock or limited liability company with total assets or sales of at least KRW50 billion in the previous business year; or
• a company that meets at least two of the following criteria for stock companies, or three for limited liability companies:
1. total assets of KRW12 billion or more at the end of the previous year;
2. total liabilities of KRW7 billion or more at the end of the previous year;
3. sales of KRW10 billion or more in the previous year;
4. 100 or more employees at the end of the previous year; or
5. 50 or more members at the end of the previous year for limited liability companies.

South Korea’s capital markets have matured significantly, offering diversified funding sources that support the country’s economic development. The Korea Exchange (the “KRX”) is the primary platform for securities trading, with its KOSPI market serving larger companies and its KOSDAQ market catering to smaller, high-growth firms.

South Korean businesses have traditionally relied heavily on bank financing. However, since the 1997 Asian financial crisis, corporate bonds and equity offerings have gained popularity, allowing companies to reduce dependence on bank loans. As of September 2024, the KRX reported a market capitalisation of approximately USD1.9 trillion, reflecting substantial growth. The corporate bond market has also expanded significantly, with companies increasingly favouring bond issuance as a funding strategy. In September 2024 alone, direct corporate financing surged by nearly 60%, totalling KRW31.6 trillion, driven largely by bond issuance.

Despite this shift, bank financing remains crucial, particularly for small and medium-sized enterprises (SMEs). Overall, South Korea’s capital markets provide a well-balanced mix of funding options, underscoring the country’s dynamic and mature financial landscape.

South Korea’s capital markets are governed by the Financial Investment Services and Capital Markets Act (the “FSCMA”), which regulates financial investment business licensing, securities issuance, public company regulation, prevention of unfair trading, fund management, and the governance of market institutions, such as the Korea Financial Investment Association and Korea Securities Depository. The KRX sets listing and disclosure requirements for its three main markets as follows.

• KOSPI: companies must meet both quantitative criteria (eg, operating history, capital size, financial performance) and qualitative criteria (eg, management transparency, investor protection).
• KOSDAQ: listing requirements are less stringent, focusing on share distribution, financial performance and investor protection.
• KONEX: targeted at SMEs and venture companies, KONEX offers smaller-scale compliance and includes special exemptions for technology-rated or crowd-funded companies.

Requirements for Foreign Investors

Foreign investors are subject to specific requirements under the FSCMA. These requirements are as follows.

• Private off-market transactions: private off-market transactions are permitted for:
1. the acquisition of 10% or more in voting rights or if they confer board representation; or
2. the sale of shares totalling more than 10% or more in voting rights or conferring board representation.
• Public-purpose corporations: foreign ownership is limited as stipulated in the articles of incorporation, but in any event, to 40% of the total number of equity securities.
• Trading listed securities or derivatives: foreign investors must open a trading account and comply with transaction reporting requirements.

Foreign investors structured as investment funds are not subject to additional regulations beyond those applicable to other types of foreign investors.

South Korea operates a merger control regime and is considered one of the most rigorous jurisdictions in Asia for enforcing merger control regulations.

Reportable Transactions

The MRFTA, South Korea’s statutory source of antitrust/competition law enforced by the KFTC, mandates merger filing for the following types of transactions, provided they meet the applicable filing thresholds.

• Share acquisition: the acquisition of 20% or more of a target company’s voting shares (15% if the target is a listed company) triggers a filing requirement. A filing is also required if an entity already holding 20% (15% if the target is a listed company) acquires additional shares and becomes the largest shareholder.
• Business or asset transfer: acquiring or leasing all or a “significant portion” of another company’s business or operational fixed assets or taking over another company’s management. “Significant portion” refers to when:

1. a transferred or leased business segment either constitutes an independent operational unit or the business/asset transfer results in a substantial reduction in the transferor’s revenue; and
2. the transfer exceeds 10% of the transferor’s total assets as recorded on its balance sheet at the end of the previous fiscal year or KRW5 billion.
• Statutory merger: transactions where the absorbed entity ceases to exist after being integrated into the surviving company.
• Joint establishment of a new company: following the formation of a new JV, the largest shareholder is required to submit the merger filing.
• Interlocking directorate in large-scale companies: when the employee or officer of a large-scale company under the MRFTA holds a directorship in another company.

Filing Thresholds

Filing obligations under the MRFTA are triggered when either of the following thresholds are met.

• Size-of-party threshold: filing is required if:
1. one party to the transaction has sales or total assets of at least KRW300 billion and the other party has sales or total assets of at least KRW30 billion; and
2. both the acquirer and target are foreign companies, or the target is a foreign company, each of the foreign parties must have sales in Korea of at least KRW30 billion. It is worth noting that sales, total assets, and domestic revenue are calculated by aggregating the figures of the party to the transaction and its affiliates, both pre- and post-transaction.

• Size-of-transaction threshold: even if the above size-of-party thresholds are not met, filing is required if:
1. the transaction value exceeds KRW600 billion; and
2. the target is engaged in substantial business activities within the Korean market (commonly referred to as “small-scale business combinations”).

Timing of the Filing

Merger filings are generally required within 30 days after closing (post-closing filing). However, pre-closing filing is mandatory in the following situations.

• Where one party to the transaction qualifies as a large-scale company, with total assets or sales, including those of its affiliates, exceeding the KRW2 trillion threshold.
• Where the transactions at issue are deemed as small-scale business combinations.

In case of pre-closing filing, filings must be submitted prior to closing, and clearance must be obtained before the transaction is finalised.

In practice, foreign investment transactions often involve acquirers that qualify as large-scale companies and are therefore subject to mandatory pre-closing filing requirements. However, post-closing filing may be allowed in cases where share acquisitions occur through unforeseeable mechanisms, such as public tender offers, competitive trading in the securities market, enforcement of collateral rights and the like.

Exemptions From Merger Filing Obligations

The MRFTA provides explicit exemptions from merger filing requirements in the following cases.

• Statutory mergers or business transfers between a parent company and a subsidiary where the parent holds at least 50% of the subsidiary’s shares.
• Share acquisitions or the establishment of JVs involving venture capital firms, investment companies or start-ups established under relevant Korean laws.
• The joint establishment of a private equity fund (PEF) under the Capital Markets and Financial Investment Business Act.
• Interlocking directorships involving less than one-third of the total board members.
• Inter-affiliate mergers involving a target (on a standalone basis) with total assets or worldwide revenue of less than KRW30 billion.

In addition, while not explicitly stipulated, the following scenarios are interpreted under the MRFTA as not triggering a filing obligation.

• In share acquisitions, the shareholding percentage is calculated at the corporate group level. Therefore, when a target’s shares are transferred between affiliates, it is not considered a new acquisition, and no filing is required.
• When all parties participating in the establishment of a new company are affiliates, the transaction is not deemed a business combination, and no filing obligation arises.

In the case of the formation of a JV, factors such as whether the JV is full function, has autonomy, or operates within Korea do not impact the filing obligation. Even if the JV is established abroad and operates exclusively outside Korea, a filing obligation arises if the parent companies meet the filing thresholds under Korean law.

Timeframe

In Korea, merger filings can only be submitted after the transaction documents have been executed. However, parties may apply for a provisional merger review from the KFTC before execution of transaction documents.

The review period officially begins once the filing is submitted. While the standard review period is 30 calendar days, the KFTC may extend it by up to 90 additional calendar days, for a total of 120 days. If the KFTC issues a request for information (RFI) during the review, the clock stops until the requested information is fully provided, often resulting in a longer overall review timeframe in practice.

The MRFTA prohibits mergers and acquisitions that substantially restrict competition in the relevant market. The criteria for conducting a competitive assessment are outlined in detail under the KFTC’s Merger Review Guidelines, which broadly classify mergers into three types: horizontal mergers; vertical mergers; and conglomerate mergers, with specific criteria provided for assessing the anti-competitive effects of each type.

Horizontal Mergers

In the case of horizontal mergers, the KFTC comprehensively evaluates factors such as market concentration before and after the merger, the potential for unilateral and co-ordinated effects, the extent of foreign competition and international competitive conditions, the likelihood of new market entry, and the presence of substitute or adjacent markets.

Vertical Mergers

For vertical mergers, the KFTC primarily evaluates the likelihood of foreclosure of supply or distribution channels for competitors of the merging parties, as well as the potential to block market entry by other businesses.

Conglomerate Mergers

For conglomerate mergers, the KFTC focuses on whether the merger reduces potential competition or results in the exclusion of rival businesses.

The Merger Review Guidelines also include special provisions for mergers in the digital sector. ­For conglomerate mergers involving online platforms, network effects are considered as a factor in assessing anti-competitive concerns.

For mergers involving data assets, the potential formation, strengthening, or maintenance of market dominance through the acquisition of data assets is taken into account.

Additionally, mitigating factors that may alleviate anti-competitive concerns include the presence of foreign competition, international market dynamics, the likelihood of new market entry, and buyers’ countervailing buying power.

Under the MRFTA, the KFTC has broad discretion to impose “necessary measures to remedy the violation” for mergers that restrict competition. This allows the KFTC to implement a wide range of remedies to address anti-competitive concerns. Types of remedies are broadly classified as structural remedies such as divestitures, and behavioural remedies such as limitations of price increases, supply obligations and/or non-discriminatory access to certain intellectual property.

The KFTC has the authority to block or prohibit mergers that are deemed to have anti-competitive effects. A company subject to prohibition orders may file an objection with the KFTC or appeal the decision in court.

Failing to file the required notification and closing the transaction without approval for a transaction requiring pre-merger notification or failing to file within 30 days after the closing date for a transaction requiring post-merger notification may result in a fine of up to KRW100 million.

However, if an unnotified transaction or premature closing is ultimately found to have no anti-competitive effects, the KFTC will limit its actions to imposing the fine and will not pursue additional corrective measures or financial sanctions.

Foreign Investment and National Security Review in South Korea

The FIPA regulates FDI exceeding KRW100 million or 10% ownership in a Korean company, or less than 10% ownership if it includes the right to appoint a director. These investments require notification to an authorised foreign exchange bank or KOTRA and registration of the Korean entity as a foreign-invested company, granting access to potential tax and other benefits.

The FIPA restricts FDI that could affect national security or public order. Under the 2022 Security Review Procedures, investments flagged for national security are reviewed by the MOTIE, with oversight from a specialised committee and the Foreign Investment Committee. Decisions on these investments follow a multi-tiered review process.

Furthermore, the Act on the Prevention of Divulgence and Protection of Industrial Technology mandates prior approval for M&A activities resulting in foreign acquisitions involving 50% or more of a company holding national core technology developed with government R&D support. Foreign acquisitions of other companies holding any national core technology must be reported in advance to the Minister of Trade, Industry, and Energy.

Under the FIPA, foreign investment qualifies as FDI in South Korea in the following cases, regardless of its form (ie, partnerships, JVs, government-affiliated acquisitions, or non-controlling minority investments).

• Acquisition of 10% or more of voting shares in a Korean company.
• A long-term loan with a maturity of five years or more provided by an overseas parent company.
• Contribution exceeding 10% or KRW50 million to a non-profit organisation or corporation.
• Investment of retained earnings in the establishment or expansion of facilities.

However, under the Foreign Investment Security Review guidelines, the following cases require a security review assessing potential threats posed by foreign investors or governments, vulnerabilities of the target company, and the impact on national security.

• Acquisition of effective managerial control.
• Actions that disrupt the production of defence materials, involve technology or goods potentially diverted for military use, risk disclosure of state secrets, pose a serious threat to international peace and security efforts, or risk the leakage of national core or advanced strategic technology.

The Act on the Prevention of Divulgence and Protection of Industrial Technology mandates additional review for foreign investments in entities possessing national core technology, which is defined as technology whose foreign disclosure could significantly impact national security and economic stability. Criteria for requiring prior approval or notification include:

• acquiring 50% or more of shares, or less than 50% but becoming the largest shareholder with control over executive appointments or management decisions;
• leasing or acquiring the whole or a significant portion of the business with operational control; or
• providing funds or contributions with control over the appointment of a majority of the executive officers.

Under the FIPA, FDI filings do not generally involve specific remedies or commitments. For investments subject to the Foreign Investment Security Review, the MOTIE may prohibit, conditionally allow, or approve the investment, with immediate notification to the investor. The Regulations on Security Review Procedures do not mandate predefined remedies or commitments for conditional or denied investments, although investors may propose these measures, and the authorities may consider them at their discretion.

Similarly, under the Act on the Prevention of Divulgence and Protection of Industrial Technology, foreign investors in transactions involving national core technologies may request a preliminary review from the MOTIE. However, remedies or commitments are not stipulated for cases where approval is denied.

In South Korea, FDI must generally be reported in advance, and failure to do so results in foreign exchange banks denying remittance approval, effectively blocking the investment. If a foreign investor proceeds without filing, they may face administrative fines or criminal penalties, and the MOTIE can issue corrective orders for non-compliance.

Under the Act on the Prevention of Divulgence and Protection of Industrial Technology, the MOTIE also holds the authority to suspend, prohibit, or require reversal of overseas M&A if national security is at risk. This decision is made following consultation with relevant central administrative agencies and a committee review. Unauthorised investments involving national core technologies can lead to criminal penalties.

Regulatory Framework for Foreign Investment in South Korea

While South Korea encourages foreign investment across many sectors, key regulatory frameworks apply. Investments that do not fall under the scope of the FIPA are governed by the FETA. Under the FETA, foreign exchange transactions must be reported to the appropriate authority, such as the Ministry of Strategy and Finance, the Bank of Korea, or an authorised foreign exchange bank, depending on transaction structure and investment size.

Compliance with these reporting requirements is critical, as non-compliance may restrict remittance of foreign currency. In severe cases, significant unreported transactions may lead to criminal penalties, even for seemingly technical violations.

Sectoral Restrictions on Foreign Investment

South Korea’s foreign investment framework allows foreign participation in most sectors. However, certain industries impose limitations to protect national interests. Specific sectors are subject to varying degrees of regulatory oversight, depending on the industry’s sensitivity and strategic importance.

For example, under the regulations established pursuant to the FIPA, foreign investment is prohibited in the following sectors.

• Postal services, central banking, personal mutual aid services, pension services and financial market management services.
• Legislative, judicial, and administrative agencies and diplomatic missions in South Korea.
• Educational institutions (including preschools, primary and secondary schools, colleges, universities, postgraduate schools, and any other forms of schools).
• Artists, religious organisations, industrial or professional associations, environmental groups, political organisations, and labour unions.
• Nuclear power generation, radio broadcasting, and terrestrial broadcasting.

Under the regulations established pursuant to the FIPA, foreign investment is restricted in the following sectors.

• Livestock farming (beef cattle), meat wholesale, power transmission and distribution, electricity sales, domestic passenger and freight transport, air transportation, newspaper publication, and magazine or periodical publication (restricted to under 50%).
• Programme supply, cable broadcasting, satellite broadcasting, and other telecommunications (except value-added telecommunications, which have no foreign ownership restrictions) (restricted to under 49%).
• Hydroelectric, thermal, solar, wind, and other power generation (restricted to up to 30%).
• News services (restricted to less than 25%).
• Grain and other crop cultivation, basic inorganic chemical manufacturing, non-ferrous metal smelting and refining, radioactive waste collection, transport, and disposal, and domestic banking (excluding agricultural and fisheries co-operatives) (generally allowed but restricted with respect to limited scope of business).

These restrictions reflect South Korea’s commitment to balancing its open investment climate with safeguarding national interests and strategic industries.