Private Equity Funds in South Korean

Using private capital for investment purposes in South Korea falls under the category of “financial investment business”. As regards regulatory framework, PEFs in South Korea are regulated by the FSCMA. Their overwhelming majority is used to make controlled equity investments in existing corporations.

Government Requirements

South Korean PEFs aren’t required to comply with any licensing or registration requirements. The only thing a PEF manager may be required to do is report PEF creation to the FSS.

However, if a manager plans to apply for a financial services license in South Korea, they must obtain FSS approval prior to establishing a PEF.

South Korea: Obtaining an Investment Advisor License 

Only FSS-registered corporations, and not individuals, can be PEF managers. Registering a corporation in South Korea requires meeting the following criteria:

• having a net capital of eighty five thousand dollars;
• ensuring compliance of directors & auditors with the requirements of the CG Law;
• having a system of internal compliance rules.

Taxation

Those interested in establishing a PEF in the Republic of South Korea should keep in mind that PEFs in this country are considered corporations. Because of their status, they’re subject to corporate income tax. However, they can also be treated as partnerships & be exempt from corporate income tax. 

Regulatory Restrictions

The FSCMA divides investors into two categories: 

• professional;
• ordinary.

In addition, Korean PEFs are prohibited from having more than forty nine ordinary investors.

Investors

If there’s any changes in a PEF establishment report, they must be reported to the FSS by PEF managers. Investors’ identities & the amount of capital committed by them aren’t obligatory reporting requirements. As regards other information, it must include:

• total number of investors;
• number of investors in each category;
• total amount of capital investments made by each category of investors; 
• total amount of contributions made by each each category of investors.

AML

Registering a financial institution in South Korea requires conducting DD as per the KYC AML procedures.

Stock Exchange Listing

South Korean PEFs are prohibited from being publicly listed on the KSE.

Conclusion

The global economic meltdown triggered by the coronavirus pandemic has negatively impacted South Korea’s private capital market. It has also made concluding M&A deals involving PEFs in South Korea a lot harder & led to capital flight. However, its negative impact can be somewhat offset by the restructuring of South Korean companies and amendments to South Korea’s PEF regulatory framework.