Louis Vuitton, Gucci face external audits

By Yoon Ja-young

Luxury brands operating here such as Louis Vuitton and Chanel as well as global tech giants Apple and Google are to be subject to external audits.

This follows a law revision aimed at preventing them from keeping corporate information secret.

The revision to the External Audit Law was recently approved at the National Assembly, laying the ground work for regulators to make limited liability companies publicly disclose key corporate information.

While limited liability companies are little different from corporations in terms of business operations, they are not obligated to make public disclosures.

According to the Financial Services Commission and the National Tax Service, the number of limited liability companies totaled 26,858 as of 2015, which is more than double the 12,091 from a decade ago. There has been suspicion that some firms are transforming their corporate structures to bypass public disclosure regulations.

While most Korean companies are operating as corporations, many of the Korean units of multinational companies operate as limited liability companies here. They include luxury brands such as Louis Vuitton Korea, Gucci Korea, Chanel Korea, Prada Korea and Hermes Korea, as well as IT giants Microsoft Korea, Apple Korea, Google Korea and Facebook Korea.

Some of them started operations as corporations, but switched to being limited liability companies. Louis Vuitton Korea, for instance, transformed its corporate structure in 2012, and Gucci Korea did the same in 2014. Apple Korea switched to its current form in 2009.

Avoiding disclosure rules means they are free from responsibilities society expects from them. Many foreign businesses operating here are criticized for channeling most of their earnings to their headquarters as dividends and royalties, while making little in the way of social contributions.

Limited liability companies can avoid criticism since they don’t have to disclose information such as sales, earnings, dividends or donations.

The Financial Services Commission pushed for a revision of the law, to make such companies disclose this information.

Currently, corporations are subject to external audits if they have more than 12 billion won in assets. When considering that around 2,000 limited liability companies have over 12 billion won in assets, the number of companies newly subject to external audits will surpass 2,000.