How to Prepare Legal Opinions for International Contracts in South Korea | Atlas Legal

1. What is a Legal Opinion?

Key Answer

A Legal Opinion is an official document in which an attorney presents legal views on specific legal issues based on relevant laws and precedents. In international transactions, it is common for counterparties to require a Legal Opinion prepared by a Korean legal expert to verify the legal status of a Korean company, its capacity to contract, and the validity of the contract.

Legal Nature of a Legal Opinion

A Legal Opinion is not a legally binding judgment or decision but an advisory document in which an attorney provides expert views. However, in international transaction practice, it is often required as a virtually essential requirement.

Differences from Domestic Transactions

In domestic transactions, contracts can be concluded with documents such as corporate registry certificates, business registration certificates, and board meeting minutes. However, in international transactions, foreign companies have difficulty directly understanding the Korean legal system, so they request verification from Korean legal experts.

For example, a Country A company finds it difficult to directly understand provisions such as Article 393 of the Korean Commercial Act (matters requiring board resolution) and Article 24 of the Monopoly Regulation and Fair Trade Act (restrictions on debt guarantees by mutual investment-restricted enterprise groups). A Legal Opinion prepared by a Korean attorney explains these legal provisions in English and confirms that the transaction complies with Korean law.

Practical Importance of Legal Opinions

Based on Atlas Legal’s recent experience with numerous international transactions, Legal Opinions serve the following practical functions.

First, they secure trust from the counterparty. Foreign companies seek to objectively verify the legal status and contract performance capability of Korean companies.

Second, they prevent future disputes. By reviewing and confirming legal issues in advance before contract conclusion, they prevent legal disputes that may arise later.

Third, they meet financial institution requirements. Financial institutions often require Legal Opinions in international project financing and similar matters.

Fourth, they serve as bidding qualification requirements. Many overseas public bidding processes establish Legal Opinion submission as a mandatory qualification requirement.

2. Why Do Foreign Companies Require Legal Opinions?

Key Answer

Foreign companies require Legal Opinions primarily due to lack of understanding of the Korean legal system, the need to verify the legitimacy and creditworthiness of the contracting party, verification of contract enforceability, and requirements under their own country’s laws and internal regulations.

Part of Due Diligence

Due diligence is an essential procedure in international transactions. From a foreign company’s perspective, it is difficult to verify on their own whether a Korean company is legally established and operating, whether the representative director has authority to conclude the contract, and whether the contract contents violate Korean law.

In the Legal Opinion prepared by Atlas Legal, we confirmed the company’s legality and representative authority based on Article 172 of the Commercial Act (incorporation registration), Article 389 (authority of representative director), and Article 393 (authority of the board of directors).

Bridging Differences in Legal Systems

South Korea is a civil law country, and its legal system differs from common law countries. For example, while written laws such as the Commercial Act and Civil Act are central in Korea, case law is important in common law systems.

Due to these differences in legal systems, foreign companies find it difficult to understand the meaning and application of Korean laws. A Legal Opinion serves to explain and interpret these differences by Korean legal experts.

Verification of Enforceability

Even if a contract is concluded, it is important whether it can actually be enforced in South Korea. Article 217 of the Civil Procedure Act stipulates requirements for recognition of foreign judgments, and the Legal Opinion specifically explains these requirements.

In a recent opinion prepared by Atlas Legal, we confirmed that judgments of Country A courts can be recognized and enforced in South Korea, citing decisions from Seoul Central District Court and Changwon District Court.

Internal Approval and Audit Requirements

Particularly for state-owned enterprises and public institutions, Legal Opinion submission is often mandatory due to internal regulations or audit requirements. If they conclude contracts without objectively verifying the legitimacy of the counterparty, it may later become an issue in internal audits.

Financial and Guarantee Requirements

In international transactions, parent company guarantees or bank guarantees are often provided. In such cases, financial institutions or guarantors also require Legal Opinions to verify the validity and enforceability of the guaranteed contract.

In a case handled by Atlas Legal, when a parent company participated as guarantor, a legal opinion was needed regarding the parent company’s capacity to provide the guarantee and the validity of the guarantee contract.

3. What Must Be Included in a Legal Opinion?

Key Answer

A Legal Opinion generally must include the following essential contents: (1) qualifications and expertise of the attorney/law firm providing the opinion, (2) list of documents reviewed, (3) applicable law and assumptions, (4) due incorporation of the company, (5) legal capacity to contract, (6) representative authority and internal procedures, (7) binding effect of the contract, (8) enforceability, (9) compliance with laws, and (10) qualifications/reservations.

Standard Structure and Sections

In international transaction practice, Legal Opinions generally follow a certain standard structure. The opinion prepared by Atlas Legal also followed this structure.

I. INTRODUCTION

• Client and Purpose of Opinion
• Basis of Opinion
• Documents Reviewed
• Assumptions

II. COMPANY OVERVIEW

• Corporate Establishment and Registration
• Purpose of Business
• Capital and Issued Shares
• Representative Directors

III. LEGAL OPINIONS

• Due Incorporation
• Legal Capacity
• Due Execution
• Binding Effect
• Enforceability
• Compliance with Laws

IV. RESERVATIONS AND CONDITIONS

List of Documents Reviewed

To ensure the reliability of a Legal Opinion, the documents reviewed must be clearly stated. The documents reviewed by Atlas Legal were as follows.

Company-Related Documents:

• Corporate Registry Certificate
• Articles of Incorporation
• Business Registration Certificate
• Quarterly Report

Contract-Related Documents:

• Draft Framework Agreement
• Parent Company Guarantee Form

These documents serve as the basis for confirming the company’s legal status pursuant to Article 172 of the Commercial Act (incorporation registration), Article 289 (matters to be stated in articles of incorporation), and Article 8 of the Act on External Audit of Stock Companies, etc. (submission of business reports).

4. How to Draft a Due Incorporation Opinion?

Key Answer

A due incorporation opinion confirms that the company was legally established under the Korean Commercial Act and currently exists validly. It is prepared by citing Article 172 of the Commercial Act (incorporation registration) and Article 180 (time of acquisition of legal personality) based on corporate registry certificates, articles of incorporation, and business registration certificates.

Requirements for Company Establishment under the Commercial Act

Article 172 of the Commercial Act stipulates that “a company is established by incorporation registration.” Additionally, Article 180 specifies that “a company is established by incorporation registration at the location of its head office.”

Therefore, in a Legal Opinion, it must be confirmed that the company has completed incorporation registration and that the establishment date is clearly stated in the registry certificate.

Matters to Review in Corporate Registry Certificate

The Corporate Registry Certificate is the most fundamental document for confirming a company’s legal status. The main matters confirmed by Atlas Legal were as follows.

Essential Confirmation Matters:

• Corporate name
• Head office location
• Purpose of the company
• Total capital amount
• Total number of issued shares
• Name and address of representative director(s)
• Presence or absence of dissolution or liquidation-related registrations

It is particularly important that there should be no dissolution or liquidation-related registrations. Articles 517 et seq. of the Commercial Act provide for dissolution, and Articles 531 et seq. provide for liquidation.

5. How to Review Legal Capacity to Contract?

Key Answer

Reviewing legal capacity to contract involves confirming whether the company has the legal capacity as a juristic person to conclude and perform contracts. It is prepared based on Article 34 of the Civil Act (legal capacity of juristic persons) and the business purposes stipulated in the articles of incorporation.

Legal Capacity and Capacity to Act of Juristic Persons

Article 34 of the Civil Act stipulates that “a juristic person becomes the subject of rights and duties within the scope of the purpose defined in its articles of incorporation in accordance with the provisions of law.”

This means that a juristic person, like a natural person, has the capacity to acquire rights and assume obligations (legal capacity), and also has the capacity to perform legal acts on its own (capacity to act).

Scope of Business Purpose in Articles of Incorporation

What is important is that the contract contents must be within the scope of the business purpose stipulated in the articles of incorporation.

Article 2 (Purpose) of the articles of incorporation of Company B reviewed by Atlas Legal stated several matters related to the electricity business as business purposes.

The contract Company B intended to conclude was for supply of transmission equipment (AC cables, etc.) to the Country A power company, which clearly falls within the purpose business in the articles of incorporation.

6. When is a Board Resolution Required?

Key Answer

Article 393 of the Commercial Act stipulates that important matters of business execution such as “disposal or transfer of material property, borrowing of large-scale property, appointment or dismissal of branch managers, and establishment, relocation, or closure of branches” must be determined by board resolution. When the contract amount is large, unlimited guarantees are provided, or there is a significant impact on the company, a board resolution is required.

Provisions of Article 393 of the Commercial Act

Paragraph 1 of Article 393 of the Commercial Act stipulates as follows:

“The following matters shall be determined by resolution of the board of directors:

1. Appointment or dismissal of branch managers
2. Establishment, relocation, or closure of branches
3. Issuance of new shares
4. Raising of bonds
5. Capital increase through transfer of reserves
6. Appointment and dismissal of representative directors
7. Appointment or dismissal of stock transfer agents and their contract terms
8. Disposal or transfer of material property and borrowing of large-scale property
9. Establishment, relocation, or closure of branches”

Among these, particularly important for international transaction contracts is No. 8, “disposal or transfer of material property and borrowing of large-scale property.”

Criteria for “Material Property” and “Large-Scale Property”

The problem is what constitutes “material property” or “large-scale property.” The Commercial Act does not provide clear monetary criteria for this.

The Supreme Court decision of May 11, 2023 (Case No. 2020Da290187) held that “it should be determined comprehensively considering the company’s total assets, capital, the value of the property in question, and the impact on company management.”

Whether these criteria are met may be judged differently depending on the circumstances of each company. However, for significant bidding contracts with foreign companies, it is advisable to obtain a board resolution to prevent disputes in advance.

7. Can Foreign Court Judgments Be Enforced in Korea?

Key Answer

Article 217 of the Civil Procedure Act stipulates the requirements for recognition of foreign judgments, and if the following four requirements are met, foreign judgments can be recognized and enforced in South Korea: (1) existence of international jurisdiction, (2) proper service of litigation documents to the defendant, (3) recognition does not violate good morals or social order, and (4) reciprocity exists.

Provisions of Article 217 of the Civil Procedure Act

Article 217 of the Civil Procedure Act stipulates as follows:

“Paragraph 1. A final and conclusive judgment of a foreign court shall be recognized only when it satisfies all of the following requirements:

1. The international jurisdiction of the foreign court is recognized under the statutes or treaties of the Republic of Korea
2. The defeated defendant was served, in accordance with a proper method and with sufficient time to enable him/her to defend, with a complaint or its equivalent document and a notice of date or order (excluding cases of service by public notice or equivalent service), or the defendant responded to the lawsuit without receiving such service
3. The contents and litigation procedures of the judgment do not violate good morals or other social order of the Republic of Korea
4. Reciprocity is recognized

Paragraph 2. A final and conclusive judgment of a foreign court that satisfies the requirements of Paragraph 1 may be enforced in a judicial proceeding.”

Therefore, if all four of these requirements are met, a final judgment of a foreign court can be recognized and enforced in South Korea.

Recognition of International Jurisdiction

The first requirement is that the international jurisdiction of the foreign court must be recognized.

Article XX (Governing Law and Jurisdiction) of the framework contract reviewed by Atlas Legal stipulated that “this contract shall be governed by the laws of Country A, and the courts of Country A shall have exclusive jurisdiction.”

Atlas Legal found precedents where Korean courts granted enforcement recognition of Country A judgments, and clearly stated in the opinion that Country A judgments can be enforced domestically.

8. Essential Compliance Matters in International Transactions

Key Answer

In international transaction contracts, compliance is required with (1) Anti-Corruption and Anti-Bribery laws, (2) Sanctions Compliance, (3) Environmental Protection, (4) Occupational Safety and Health, and (5) Foreign Exchange and Trade Laws.

Anti-Corruption and Anti-Bribery Laws

Most international transaction contracts include Anti-Bribery Clauses. Article XX of the framework contract reviewed by Atlas Legal also required the supplier to comply with anti-corruption laws.

Relevant Korean laws are as follows.

Act on the Prevention of Solicitation and Graft (Anti-Graft Act)

This law, commonly called the “Kim Young-ran Act,” prohibits improper solicitation and receipt of money and valuables to public officials. Article 8 prohibits public officials from receiving money and valuables exceeding 1 million won at one time or 3 million won per fiscal year from the same person, regardless of whether it is job-related and regardless of the name such as donation, sponsorship, or gift.

Article 129 of the Criminal Act (Acceptance of Bribe, Acceptance of Bribe in Advance)

It stipulates that a public official who receives, demands, or promises a bribe in relation to his/her duties shall be punished by imprisonment for not more than five years or suspension of qualification for not more than ten years.

Act on the Aggravated Punishment, etc. of Specific Economic Crimes

Article 3 provides for aggravated punishment when the amount of bribery is 30 million won or more.

9. Atlas Legal’s Actual Case Study

Background of the Case

Atlas Legal recently received a request to prepare a Legal Opinion from Company B, a Korean electrical equipment manufacturer located in Songdo. Company B was participating in bidding for a large-scale framework contract for transmission equipment supply issued by a state-owned power company in Country A.

One of the bidding requirements was “submission of a Legal Opinion prepared by a Korean legal expert,” but Company B was perplexed as they had no experience submitting such documents in domestic transactions. Only 5 business days remained until the bidding deadline.

Swift Response and Document Review

Atlas Legal immediately commenced document review to verify the legal status of Company B and its parent company, Company B Holdings.

Documents Reviewed:

• Company B Corporate Registry Certificate
• Company B Articles of Incorporation
• Company B Business Registration Certificate
• Company B Quarterly Report
• Company B Holdings Corporate Registry Certificate
• Company B Holdings Articles of Incorporation
• Company B Holdings Business Registration Certificate
• Company B Holdings Quarterly Report
• Draft Framework Agreement
• Parent Company Guarantee Form

Through intensive review of these documents, we conducted detailed analysis of relevant laws including the Commercial Act, Civil Act, Monopoly Regulation and Fair Trade Act, Act on External Audit of Stock Companies, Civil Procedure Act, and Foreign Exchange Transactions Act.

Analysis of Key Issues

During the Legal Opinion drafting process, the following key issues were identified.

Issue 1: Company B’s Capacity to Contract

Article 2 of Company B’s articles of incorporation stipulated “manufacture and sale of electrical and industrial equipment” as the business purpose. The framework contract was for supply of transmission equipment (AC cables, etc.) to Country A’s power company, which clearly fell within the scope of the business purpose in the articles of incorporation. Therefore, we determined that Company B has legal capacity to conclude this contract.

Issue 2: Necessity of Board Resolution

The parent company guarantee provided by Company B Holdings was to guarantee all obligations of Company B without any limitation on amount, which could create significant contingent liabilities for Company B Holdings. Therefore, we specified that a board resolution is required pursuant to Article 393 of the Commercial Act.

Completion of Professional Opinion

Atlas Legal completed a professional Legal Opinion through intensive work. All opinions clearly cited relevant legal provisions and precedents and presented them accurately translated into English.

10. FAQ

Atlas Legal, located in Songdo, Incheon, provides legal services in corporate law, corporate disputes, corporate advisory, corporate crimes (fraud, embezzlement, breach of trust, tax law, customs law), and international business. We recently prepared a Legal Opinion for a framework contract with a state-owned power company in Country A, supporting a Korean electrical equipment manufacturer’s successful bidding and contract conclusion. We possess expertise in preparing professional Legal Opinions based on relevant Korean laws including the Commercial Act, Civil Act, and Civil Procedure Act, as well as English legal service capabilities, and our attorneys specialized in international transactions provide swift and accurate services.

※ The case presented in this article is based on actual Legal Opinion preparation experience, but company names and country names have been anonymized to protect client confidentiality, and some facts have been adapted to aid understanding.