When a foreign buyer acquires a Korean business, one of the first decisions is how to buy it. The buyer can acquire the shares of the Korean company, take over the business itself, or purchase selected assets. The choice affects much more than the purchase agreement. It determines whether employees transfer automatically, which historical liabilities follow the business, which contracts and licenses survive, and how much tax the buyer and seller pay at closing and afterwards. This article explains how each structure works under Korean law and how to choose between them.
1. Why the Structure Matters
In many jurisdictions, an asset deal is the standard way to leave the seller’s problems behind. In Korea, that assumption is only partly true. Korean law follows the business in several important respects:
- employment relationships transfer with a business transfer
- certain tax liabilities follow the transferee
- a buyer that continues the seller’s trade name can become liable for the seller’s business debts
At the same time, a share deal brings every historical liability of the company with it, known or unknown.
Key takeaway: Neither structure is automatically “clean.” The right choice depends on what you need to acquire, what you are willing to inherit, and how the risks are priced and allocated in the documents.
2. The Three Basic Structures
① Share acquisition. The buyer purchases the shares of the Korean company. The company itself does not change. It keeps its employees, contracts, permits, assets, and liabilities. Only its owner changes.
② Business transfer . The buyer acquires the business as a going concern: its assets, contracts, employees, and goodwill, organized as a functioning operation. Korean courts treat this as a distinct legal concept with its own consequences, particularly for employees.
③ Asset purchase. The buyer purchases selected assets, such as equipment, inventory, intellectual property, or real estate, without taking over the business as an organized whole.
The line between ② and ③ is drawn by substance, not by the title of the contract. If the buyer takes over enough of the seller’s assets, staff, and operations that the business continues in substantially the same form, a court is likely to treat the deal as a business transfer, even if the agreement calls it an asset purchase.
A fourth route is sometimes used for carve-outs. The seller first separates the target business into a new subsidiary through a corporate split, and then sells the new company’s shares. This combines features of both structures and is discussed briefly in Section 9.
3. Employees
Employment is where the structures differ most sharply, and where foreign buyers are most often surprised.
Share acquisition
Because the employer does not change, employment contracts, service periods, accrued severance, unused leave, and collective agreements all continue unchanged. No employee consent or notice is required for the change of ownership itself.
However, the buyer inherits every existing labor issue, including:
- unpaid overtime or allowances
- underfunded severance
- misclassified contractors
- ordinary-wage exposure
These are addressed in our separate article on due diligence. Any post-closing restructuring remains subject to Korea’s strict dismissal rules.
Business transfer
Under established Supreme Court case law, when a business is transferred, the employment relationships of the employees in that business transfer to the buyer as a general rule. In practice, this means:
- Automatic transfer. Employees move to the buyer without signing new contracts. Their service is continuous, so severance pay, annual leave, and the two-year limit for fixed-term employment are calculated on their combined service with the seller and the buyer.
- Right to object. An employee may refuse the transfer. The employee then either remains with the seller or resigns.
- Excluding employees is a dismissal. If the parties agree that certain employees will not transfer, excluding them is treated as a dismissal. It must meet the usual requirements of a justifiable reason and advance notice. The transfer itself is not a justifiable reason.
- No unilateral changes. The buyer takes over the existing terms and conditions. Changing them to the employees’ disadvantage requires their consent, or the collective consent required by the Labor Standards Act for changes to work rules.
- Pre-closing redundancies. If the seller wants to reduce headcount before closing, the special rules for redundancy dismissals apply. These include urgent managerial necessity, efforts to avoid dismissal, fair selection criteria, and 50 days’ prior notice and consultation with the union or employee representative.
- Do not settle severance at closing. Paying severance to employees whose employment continues with the buyer is an interim severance settlement, which is permitted only on limited statutory grounds. An invalid payment may not discharge the obligation. The usual solution is to calculate the seller’s accrued severance and leave liabilities and deduct them from the purchase price.
Asset purchase
In a true asset purchase, employment does not transfer automatically. The buyer may decide whom to hire and on what terms, and the seller remains responsible for ending the employment of its staff, including dismissal notice and severance.
The risk is recharacterization. If the buyer takes over the seller’s premises, customers, and most of its staff, and the operation continues with little or no gap, a court may find a business transfer. Employees who were not hired could then claim that their employment transferred and that they were unfairly dismissed.
Key takeaway: If you want to choose which employees join you, a share deal will not allow it, and a business transfer allows it only with a justifiable reason. An asset purchase allows it only if the deal genuinely is an asset purchase in substance.
4. Liabilities
Share acquisition
All liabilities remain with the company, so economically they become the buyer’s problem. This includes:
- contingent liabilities, such as litigation, product claims, and environmental issues
- tax exposure for open years
- penalties for past regulatory breaches
The buyer’s protection is contractual: representations and warranties, specific indemnities, escrow or holdback, and a purchase-price adjustment.
A buyer that acquires more than 50% of an unlisted company also becomes a controlling shareholder for tax purposes. A controlling shareholder can bear secondary liability for the company’s unpaid taxes, in proportion to its shareholding, for taxes that arise while it holds that position.
Business transfer and asset purchase
The general rule is favorable to the buyer. A business transfer is a transfer of specific assets and contracts, not a universal succession like a merger, so the seller’s debts stay with the seller unless the buyer agrees to assume them. There are four important exceptions:
- Continued use of the trade name. A buyer that continues to use the seller’s trade name is liable, together with the seller, for the seller’s business debts. The buyer can avoid this by registering promptly that it does not assume those debts, or by notifying the creditors.
- Announcing an assumption of debts. Even without the trade name, a buyer that publicly announces it is assuming the seller’s business debts becomes liable for them.
- Secondary tax liability of the transferee. A buyer that takes over a business can bear secondary liability for the seller’s national and local taxes that were finalized before the transfer, up to the value of the property it acquired.
- Fraudulent transfer. If the seller is insolvent, its creditors may seek to set aside the transfer as a fraudulent conveyance.
In addition, under a business transfer, the employment-related liabilities described in Section 3 follow the employees.
Key takeaway: An asset-side deal does not automatically leave liabilities behind. To limit exposure, avoid continuing the seller’s name or register a non-assumption, obtain the seller’s tax clearance certificates, and list assumed and excluded liabilities expressly.
5. Contracts, Licenses, and Personal Data
Contracts.
- Share deal. The company remains party to all its contracts. The buyer should still check change-of-control clauses in key customer, supplier, lease, and financing agreements.
- Business transfer or asset purchase. Each contract must be assigned, which generally requires the counterparty’s consent. Leases require the landlord’s consent, and some counterparties may use the request to renegotiate.
Licenses and permits.
- Share deal. Business licenses, registrations, and certifications generally stay with the company. Some regulated sectors, such as finance, require approval of a change in controlling shareholder.
- Business transfer or asset purchase. Most permits do not transfer automatically. Some regimes allow the buyer to succeed to the seller’s status by filing a succession report. Others require the buyer to apply afresh. For example, an education academy’s operator can be changed by amending its registration. The timing of the regulator’s approval can then determine the closing timetable.
Personal data.
- Share deal. The company continues to hold its customer and employee data, so no transfer occurs.
- Business transfer. Under the Personal Information Protection Act, the seller or buyer must notify data subjects that their personal data is being transferred with the business. The buyer may use the data only for the original purposes.
6. Tax
Share acquisition
- Seller. The seller pays capital gains tax on the share sale. Foreign sellers may be subject to Korean withholding at source, subject to treaty relief. Securities transaction tax of 0.35% applies to transfers of unlisted shares.
- Buyer: deemed acquisition tax. A buyer that becomes a controlling shareholder holding more than 50% may owe deemed acquisition tax (과점주주 간주취득세), even though it acquired shares rather than assets. The tax is generally 2% of the value of the company’s taxable assets, such as real estate and vehicles, multiplied by the buyer’s shareholding. This is easy to overlook when the target owns real estate.
- No step-up in basis. The company’s assets keep their historical tax values, and goodwill paid in the share price cannot be amortized for tax purposes.
Business transfer and asset purchase
- VAT. A transfer of a business as a whole is not treated as a supply of goods, so no VAT is charged. If the transfer does not qualify, for example because significant parts of the business are excluded, 10% VAT applies to the taxable assets. Where qualification is uncertain, the buyer can withhold and pay the VAT on the seller’s behalf under a proxy-payment procedure, which avoids later disputes.
- Acquisition tax. The buyer pays acquisition tax on real estate, vehicles, and certain other registered assets. For commercial real estate, the combined rate is generally about 4.6%. Higher rates can apply to companies established within the past five years that acquire real estate in the Seoul metropolitan overcrowding control area.
- Step-up and goodwill. The buyer records the acquired assets at the price paid. Goodwill paid for the business can generally be amortized for corporate tax purposes over five years. This is a meaningful advantage over a share deal.
- Seller. A corporate seller pays corporate tax on the gain. An individual seller may pay capital gains tax on real estate and on goodwill transferred with it, and other income tax on goodwill transferred separately.
Key takeaway: A share deal is usually simpler and cheaper for the seller. An asset-side deal often gives the buyer a better tax position going forward, but it may cost more at closing in VAT and acquisition tax.
7. Filings for Foreign Buyers
Regardless of structure, a foreign buyer should plan for the following:
- Foreign investment report. Acquiring 10% or more of a Korean company with an investment of KRW 100 million or more is a foreign investment under the Foreign Investment Promotion Act. In an asset deal, the buyer usually forms a Korean acquisition vehicle first, which is itself a foreign investment.
- Merger control. Depending on the parties’ turnover and assets, the transaction may require a filing with the Korea Fair Trade Commission.
- Foreign exchange. Purchase-price remittances and capital injections must be processed through a designated foreign exchange bank, with supporting documentation.
- National core technology. Acquisitions of companies holding designated national core technologies require government approval.
8. Side-by-Side Comparison
| Issue | Share acquisition | Business transfer | Asset purchase |
|---|---|---|---|
| Employees | Unchanged; all history stays | Transfer automatically with continuous service; exclusion is a dismissal | Do not transfer, unless recharacterized as a business transfer |
| Historical liabilities | Stay with the company (economically the buyer’s) | Stay with the seller, subject to trade-name, tax, and fraudulent-transfer exceptions | Stay with the seller, subject to the same exceptions |
| Contracts | Continue; check change-of-control clauses | Require assignment and counterparty consent | Require assignment and counterparty consent |
| Licenses | Generally stay | Succession report or new application | New application in most cases |
| Personal data | No transfer | Notice to data subjects required | Transfer requires a legal basis or consent |
| VAT | None | None if a comprehensive transfer | 10% on taxable assets |
| Acquisition tax | Deemed acquisition tax above 50% | On real estate and registered assets | On real estate and registered assets |
| Goodwill amortization | Not available | Available | Available |
| Seller’s tax | Capital gains tax and securities transaction tax | Tax on the gain | Tax on the gain |
9. Choosing the Structure
A share acquisition usually fits when:
- the company holds licenses, registrations, or contracts that would be difficult to transfer
- you intend to keep the whole workforce and operation intact
- diligence has given you a clear picture of historical liabilities, and the purchase agreement can allocate the remaining risk
A business transfer or asset purchase usually fits when:
- the seller operates several businesses and you want only one
- the company has significant or unquantifiable historical liabilities
- the tax benefit of a stepped-up basis and goodwill amortization is material
- you need flexibility over which assets, and potentially which employees, you take on
A corporate split followed by a share sale can be useful where you want only part of the seller’s business but need its permits and contracts to carry over. It requires careful planning of the split plan, the treatment of employees in the separated business, creditor protection procedures, and the tax requirements for deferring gains on the split.
Whatever the structure, the purchase agreement should reflect it. A share deal relies on strong representations, indemnities, and escrow. A business transfer needs precise schedules of transferred assets, contracts, and employees, along with assumed and excluded liabilities, and a mechanism for settling accrued employee liabilities through the price.
10. Conclusion
In Korea, the choice between buying shares and buying a business does not simply decide whether liabilities come with the deal. It determines how they come: automatically through the company in a share deal, or through specific rules on employees, trade names, and taxes in a business transfer.
Buyers that understand these mechanisms early can choose the right structure, set the price to reflect the real exposure, and draft documents that allocate the risks deliberately. Discovering them after closing leaves far fewer options.
Key takeaway: Decide the structure before signing the term sheet. Diligence, pricing, employee planning, and the closing timetable all depend on it.