Harim, Ottogi in stark contrast over inheritance

By Nam Hyun-woo

Passing on control of a company to the next generation has long been a thorny issue for chaebol owners here.

While some resort to tricks to sidestep regulations and heavy taxation and others opt to pay due taxes. The former strategy runs the risks of causing a backlash while the latter approach may lead to financial trouble for the owner family.

Here are two food companies both standing as successes here but which went quite different ways to pass on control from the founders to their descendants.

Harim: W10 billion for W10 trillion

The Harim Group, Korea’s leading livestock and animal feed company, recently experienced criticism for its controversial power transfer from Chairman Kim Hong-kuk to his 25-year-old son Jun-young.

In 2012, Chairman Kim transferred a 100 percent stake of Harim affiliate Orpum to his son. Orpum is the sales arm of Korea Thumb Vet, which is also a Harim affiliate manufacturing animal drugs. Jun-young paid 10 billion won ($8.81 million) in gift tax.

Causing debate, however, is the corporate structure of the Harim Group.

Harim is under its holding company Jeil Holdings, whose largest shareholder is the senior Kim with 41.8 percent. The second-largest shareholder is Korea Thumb Vet with 37.14 percent followed by Orpum with 7.46 percent.

Given the junior Kim is holding a 100 percent stake in Orpum, which has a 100 percent stake in Korea Thumb Vet, the 20-something is now the de-facto largest shareholder as his direct and indirect stake in Jeil Holdings is larger than that of his father.

In other words, the junior Kim virtually inherited the group whose assets are estimated to stand at 10 trillion won by paying a mere 10 billion won. The amount compares to the relevant law, which stipulates tax rates of up to 50 percent of the amount inherited.

As criticism grows, Chairman Kim explained that the process was completely legal. Kim had interviews with news outlets to claim that he and Harim complied with the relevant laws.

On June 22, Chairman Kim also attended a company event in Gongju, South Chungcheong Province, and also spent time repeating his explanation.

“The 2012 transfer of Orpum was an inevitable choice because of family issues,” Kim told reporters.

“The whole controversy comes from a misunderstanding because at the time of the transfer the group’s assets were standing at around 3.5 trillion won; but it then grew to 10 trillion won after acquiring PAN Ocean,” he said. Pan Ocean is a shipping company that the group acquired in 2015.

To the question of whether his son will manage the group, Chairman Kim said he will give control to him if he seems to be capable of doing so, but otherwise he will remain just as a shareholder.

Ottogi: W150 bil. for W1.65 tril.

While Harim is slammed for paying 10 billion won in gift tax for a 10 trillion won company, Ottogi is praised for keeping the law in a proper manner.

Chairman Ham Young-joon plans to pay 150 billion won in inheritance taxes after taking control of the company with 1.65 trillion won in assets.

On Dec. 22 last year, Ham received a 13.53 percent share in Ottogi and 3.01 percent share in Choheung Corp., an Ottogi affiliate, from his father Ham Tae-ho, its founder who died in September.

Chairman Ham’s stake in Ottogi rose to 28.91 percent, making him the largest shareholder in the company. And he promised to pay 150 billion won in inheritance taxes over five years.

On June 19, the company said in a regulatory posting that Ham Seung-ho, a younger brother of the late founder, also bequeathed his 33,598 shares, or 0.98 percent, in Ottogi to three of his children.

As Ottogi shares trade at around 800,000 won, the amount they each have to pay in inheritance tax would be around 4.5 billion won.

The Ottogi family’s move has won applause because it is rare for an owner family transfer control or assets without tax evasion.

“We feel a little bit embarrassed over the recent attention the company is getting, recognizing us for best practices in inheritance,”an Ottogi official said. “We have no intention to promote this or compare us with other companies. We’ll just do what we have to do.”