By Sean Hayes

My mother once told me to look both ways before crossing the street, carry an umbrella in the spring and don't go out alone at night. The advice can go a long way when doing business in Korea or in most parts of the world.

Minority ownership in a company dominated by Korean shareholders is unwise without a little due diligence, a carefully drafted shareholders agreement and some Korean know-how. Korean statutory law provides less protection, through law, to minority shareholders than many U.S. states and Western nations.

This article is not intended to discourage investors. Don't avoid joint ventures in Korea; just enter them with understanding, care and a Korea-savvy guide.

The horror stories about the pitfalls of doing business in Korea can fill a book. However, the same can be said of success stories.

Many have found Korea to be a wonderful place to do business; however, they have followed some good old fashion Korean know-how and guidance.

I saw a director representing minority shareholders investigated by the prosecution for actions that the majority had complained that the director was involved in. The revelations to the prosecutor only occurred after a heated debate over the lack of adequate financial oversight.

I saw numerous instances were minority shareholders' shares had no market value and Korean law provided no adequate answers other than the slim chance of prevailing in dissolution, buyout or other like actions.

Even in the unlikely case of piercing the corporate veil, often only a fraction of the initial investment is recoverable.

In a recent case that received a good deal of media attention, a director/minority shareholder was held personally liable for the debts of the company based on his alleged lack of management oversight.

This is not meant to discourage investors. This nation can be a profitable, enjoyable and personally satisfying place to do business. However, the business waters are teeming with sharks and without a little water savvy and a guide, you will become the next meal.

My motivation for writing this article stems from a practice that has re-emerged in the past few years.

Non-Korean companies have been offered ``sweetheart" deals by local investors. Often the face of the deal is sweeter than the deal.

Some of these local ``investors" offer foreign investors small non-controlling share percentages in a venture in order to attract the attention of potential local investors and government officials. The foreign company, in many cases, is a key supplier of technology and/or unique products.

For example, a Korean manufacturing company may offer a share percentage to a foreign high-tech manufacturer. The local manufacturer would like to be granted permission to develop land owned by the local government and also receive bank or private equity.

The local manufacturer receives recognition from local government officials and other local investors by wielding MOUs proclaiming that a foreign manufacturer will contribute technology, know-how and potential investment to the project.

Sometimes these arrangements are beneficial for the majority and the minority. The minority receives preferential consideration of their products, increased market access and potential benefits from the joint venture and the majority receives added credibility with investors and the government and potential favorable tax treatment.

However, these projects are often merely the brain-child of punters without the capabilities necessary to accomplish the project goals. The latter is more common than the former.

Therefore, as in the rest of the world, the first thing before involvement in any joint ventures is to investigate the potential co-owners. Those that haven't spent a considerable time in Korea are often unable to evaluate the unique characteristics of Korean businessman.

Therefore, it is advisable to consult an individual with in depth savvy of the Korean business environment, culture and players.

Secondly, all joint ventures must have carefully drafted shareholder agreements with minority protection clauses. The agreements cannot simply be drafted by any attorney, but must be drafted by an attorney with significant experience with international transactions.

Without this experience the attorney will likely not able to evaluate the risks involved in the venture.

Thirdly, the foreign minority investor should have a local contact to closely monitor and manage the joint venture activities for the investor.

These words are not too different from the words of good mothers. Look both ways before crossing the street, carry an umbrella to school in the spring and never go out alone in the dark.

New York attorney Sean Hayes leads the International Practice Group at Joowon Attorneys at Law, one of Korea's largest law firms. He formerly worked for the Constitutional Court of Korea and as a professor of constitutional and contract law. He may be contacted at www.thekoreanlawblog.com or at SeanHayes@joowonlaw.net.