FILING OBLIGATIONS FOR ACQUIRING SHARES IN KOREA: the exceptions

by Andrew Baek

December 30, 2024

In line with the previous articles, this article will address the exceptions to filing obligations applicable to foreign investors when acquiring shares in a Korean company.

As stated in the previous articles, if the above acquisition of shares qualifies as a foreign investment under the Foreign Investment Promotion Act (“Foreign Investment”), the foreign investor must file a Report of Foreign Investment. While the Report may, under certain circumstances, be filed after the acquisition is completed, the filing requirement remains mandatory without exception.

Here, because failure to timely file the Report may result in administrative fines and complicate subsequent transactions, including the expatriation of the investment, foreign investors are strongly advised to seek professional legal consultation prior to acquiring shares in Korean companies.

On the other hand, if the above acquisition of shares does not qualify as a Foreign Investment, the foreign investor would have to file a Declaration of Securities Acquisition only if the foreign investor does not reside in Korea.

The obligation to file a Declaration of Securities Acquisition is subject to several exceptions, the most commonly referenced being the “Acknowledged Transaction” exception.

The Acknowledged Transaction exception applies when two conditions are met. First, the non-resident foreign investor must be acquiring the shares from another non-resident. If the non-resident foreign investor is acquiring the shares from a resident, then the foreign investor generally has to file the declaration unless more narrowly tailored exceptions apply. Second, the selling non-resident must have either properly filed a Declaration of Securities Acquisition or been exempt from filing when acquiring those shares, thereby rendering the shares as “shares acquired through an acknowledged transaction”. If both conditions are fulfilled, the non-resident foreign investor is not required to file a Declaration of Securities Acquisition when acquiring the shares from the selling non-resident.

In the above case, even if the transaction qualifies for an exemption, it is advisable to obtain proof from the selling non-resident confirming that the shares qualify as “shares acquired through an Acknowledged Transaction.”

Additionally, it is essential to first accurately classify the investment by the foreign investor (e.g., as a Foreign Investment or a securities acquisition by a non-resident), assess whether any exceptions apply, and, if necessary, restructure the investment to adopt the classification most favorable to the foreign investor’s circumstances.

If you are a foreigner considering acquiring shares in a Korean company and require legal advice, please feel free to contact us at inpyeong@inpyeonglaw.com or by phone at +82 2038 2339.

Ends.