Entering the Korean market through M&A or acquiring a local partner is a strategic move for global expansion. However, what looks like a profitable company on the surface may hide significant risks underneath.

In Korea, where business practices and regulations can be unique and complex, Due Diligence is not just a formality—it is your safety net.

Here is a breakdown of FDD and LDD, and why they matter specifically in the Korean business environment.

1. Financial Due Diligence (FDD): Is the Profit Real?

Financial Due Diligence is about verifying the target company's financial health. It goes beyond simply checking the balance sheet; it analyzes the Quality of Earnings (QoE).

Why it matters in Korea:

• Severance Pay Liabilities: Unlike many Western countries, Korea has a mandatory severance pay system (Toe-jik-geum) for all employees working over a year. This is often a massive, under-recorded liability in smaller firms.

• Related-Party Transactions: Many Korean SMEs have complex transaction structures with the owner’s family or other related entities. FDD uncovers whether the reported profit is sustainable without these special relationships.

• Hidden Debts: We verify off-balance-sheet liabilities that could surprise you after the deal closes.

2. Legal Due Diligence (LDD): Are There Hidden Legal Risks?

Legal Due Diligence examines the legal status of the company, its contracts, and its compliance with Korean laws.

Why it matters in Korea:

• Strict Labor Laws: Korea has some of the strictest labor protection laws in the world. Dismissing employees is difficult and costly. LDD identifies any potential labor disputes or non-compliance issues.

• Government Permits & Licenses: We verify if all necessary business licenses are valid and transferable upon change of ownership.

• Change of Control Clauses: We review key contracts with major clients (often Chaebols) to ensure the deal won’t trigger a termination of the business relationship.

The Star Tax & Legal Advantage: Integrated Approach

Often, financial and legal risks are intertwined. A tax issue (FDD) can lead to a legal penalty (LDD), and a labor dispute (LDD) results in a financial loss (FDD).

At Star Tax & Legal, our CPAs and Attorneys work together under one roof. We don't just hand you two separate reports; we provide a comprehensive risk assessment that helps you:

1. Negotiate a better price based on identified risks.

2. Structure the deal to minimize tax impact.

3. Plan for PMI (Post-Merger Integration) effectively.

Ready to invest in Korea? Don't rely on guesswork. Contact Star Tax & Legal today for a professional Due Diligence consultation.