This content is from: Local Insights

Holding company rules

The Fair Trade Commission of Korea (KFTC) has introduced a new bill to amend the Monopoly Regulation and Fair Trade Act (MRFTA) to promote the conversion of conglomerates into a holding company structure.

The requirement to satisfy the so-called business nexus test (which provides that the business of a second-tier subsidiary (a subsidiary's subsidiary) must be related to that of the first-tier subsidiary for it to belong to the holding company) will be removed, provided that the second-tier subsidiary of a non-financial holding company is not engaged in the finance or insurance business.

The requirement to restrict debt to less than 100% of equity will be increased to 200% of equity to allow a holding company to conduct its ordinary course of business more effectively and to permit loans for such activities as temporary restructuring.

There is a grace period of two years for satisfying the requirement for a holding company to own at least 50% of shares (or 30% if the subsidiary is listed) in its subsidiary if this requirement is breached because a new holding company is established or a company is converted into a holding company. This will also apply to a merger or spin-off.

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