Luxury brands opt to keep things secret

By Lee Hyo-sik

Louis Vuitton, Gucci, Chanel and other foreign luxury goods makers are seeking to keep the lid on their corporate information here by converting the structure of their Korean units into limited liability companies.

According to fashion industry sources Monday, Gucci Korea, founded in 1998, transformed its corporate structure into a private limited company in December.

Louis Vuitton Korea, Chanel Korea and Hermes Korea have all become limited liability companies over the past few years in an apparent bid to bypass public disclosure rules here which require companies to publicly disclose key corporate information.

Many other Korean units of multinational companies, including Pizza Hut Korea, Coca Cola Korea, Google Korea and Microsoft Korea, operate here in similar forms.

A corporation and a private limited company are similar in many aspects in that the liability of the shareholders of the company is limited to the capital invested. But a corporation can make rights offers or issue corporate bonds to raise fresh funds, while a private limited company cannot easily do so.

More than 95 percent of Korean companies operate in the form of a corporation, but the growing numbers of foreign-invested companies here have chosen to become private limited companies in a bid to avoid public disclosure.

Under the laws, private limited companies are not required to hire auditors and a board of directors, or hold shareholders’ meetings. They don’t need to be inspected by outside auditors and do not have to make public their balance sheets.

These are the reasons why many foreign luxury goods companies prefer to operate as private limited companies, according to an executive at one of Korea’s business associations.

“Many foreign high-priced goods makers, which rake in hundreds of millions of dollars in profits each year in Korea, are criticized for sending the lion’s share of their earnings back to headquarters based mostly in Europe,” the executive said. “They have also been facing criticism for being reluctant to make investments here and hire jobseekers, and being stingy about making social contributions.”

Korean units of luxury item producers have come under the media spotlight when the Financial Supervisory Service releases their audit reports, which include their sales and profits.

“With mounting public criticism for their business practices, I think foreign luxury brands have decided to become private limited companies not to disclose corporate information,” the executive said.

Against this backdrop, the Financial Services Commission forwarded a revised bill concerning operations of private limited companies for approval in October. The revision, which is still pending at the Assembly’s financial standing committee, seeks to mandate private limited companies, foreign or domestic, to make public their sales and other corporate data.

Gucci and other luxury companies disclose their worldwide sales and profits, but do not release region-specific or country-specific data.