Corporate Accounting and Finance

Companies raise funds in a variety of ways to expand and operate their businesses.

The main methods of financing are as follows.

More recently, companies have also used a range of financial techniques such as perpetual bonds, hybrid securities, and total return swaps (TRS).

Because the financing method can affect governance changes, investor rights, and disclosure obligations, a review beforehand is advisable.

Acquiring treasury shares means a company buying back its own shares.

This is used for purposes such as stabilizing the share price, returning value to shareholders, securing funds for employee compensation, and adjusting the number of shares through retirement.

If a company could buy back its own shares at will, however, corporate assets would flow out and creditor protection could be affected, so the Commercial Act limits such acquisitions to within the bounds of distributable profits.

The applicable procedure can also vary with the company's listing status and the method of acquisition, such as a purchase on the exchange or a tender offer on equal terms.

A listed company must also review the disclosure issues that accompany the acquisition, holding, and disposal of treasury shares.

A reduction of reserves is the act of decreasing the capital reserves or earned reserves a company has set aside.

It can be used when a company wants to adjust its capital structure rather than simply accumulate profits, or to secure funds for dividends.

Where the combined total of capital reserves and earned reserves exceeds 1.5 times the capital, the excess may be reduced by a resolution of the general meeting of shareholders.

A reduction of reserves is therefore not a financial technique available at any time, but an act under company law subject to the limits and procedures set by law.

A reduction of capital (capital decrease) is the act of decreasing a company's stated capital.

It frequently arises in the context of covering accumulated deficits, restructuring the financial structure, cleaning up before attracting investment, and reorganizing the business.

Because it has a significant effect on shareholders and creditors, its procedure is the most stringent.

As a rule, the Commercial Act requires a special resolution of the general meeting of shareholders for a reduction of capital, requires the main contents of the agenda to be stated in the notice of meeting and the public notice, and, for an ordinary capital reduction, requires that creditor protection procedures be followed.

A reduction of capital to cover a deficit, however, can be carried out by an ordinary resolution, and in that case an exception to the creditor protection procedures is recognized.

A dividend decision is the act of distributing a company's profits to its shareholders.

On the surface, it may look like a simple return of profits, but because it actually moves company assets outside the company, it is subject to strict legal limits.

Under the Commercial Act, a company may pay dividends only within the scope of its distributable profits, and as a rule, the amount is fixed by a resolution of the general meeting of shareholders.

That said, where the financial statements are approved by the board of directors, dividends may also be decided by a board resolution.

Approval of financial statements is the procedure that legally confirms a company's accounting and financial position.

This procedure matters because it sets the baseline for dividends, reporting on management performance, shareholder approval, and any later determination of liability.

Approving financial statements is not merely an accounting formality. It ties directly to whether dividends may be paid, management's duty to explain its performance, and how the company will respond to future accounting reviews.

It calls for a resolution of the board of directors or the general meeting of shareholders, and in some cases disclosure and a filing with the supervisory authorities may be required.

All five of these directly affect company assets, shareholder rights, and creditor protection.

For that reason, the law sorts them by the scale of their impact into board resolutions, ordinary resolutions of the general meeting, special resolutions of the general meeting, and creditor protection procedures.

In particular, a capital reduction or a reduction of reserves leans heavily toward adjusting the interests of shareholders and creditors, while dividends and approval of financial statements lean toward confirming profits and distributing assets.

The points companies tend to overlook in practice are as follows.

The Financial Services Commission and the Financial Supervisory Service conduct accounting reviews of listed companies and major corporations to check for violations of accounting standards.

An accounting review focuses closely on the following matters.

• Revenue recognition criteria
• Asset valuation and impairment
• Preparation of consolidated financial statements
• Related-party transactions

Where an accounting review uncovers unlawful conduct, the following sanctions may follow.

Depending on the outcome of an accounting review, a substantive review of listing eligibility may also proceed, and in serious cases the company may even face the risk of delisting.

A company's accounting and finance activities, including the preparation of financial statements, accounting treatment, and disclosure, can give rise to criminal liability.

Window-dressing accounting, false disclosure, and fraudulent unfair trading, in particular, can draw heavy sentences, and they may even raise questions of occupational breach of trust on the part of management.

Companies should therefore build legal review and internal control into their accounting and financial decision-making.

A company's accounting and financial activities connect to a wide range of legal issues.

Under the recent accounting regulatory environment, internal accounting control systems, external audit systems, and accounting reviews have all been strengthened, which makes legal review of corporate financial activities more important than before.

Through a task force in which specialists in corporate law, finance, tax, and accounting work together, Daeryun Law Firm provides comprehensive legal advice across the full range of corporate accounting and finance matters.

Advice on Corporate Financial Structure and Funding Structure

Daeryun analyzes a company's financial situation and business structure as a whole and supports the design of various funding structures, including share issuance, corporate bond issuance, mezzanine financing, and borrowing from financial institutions.

The firm also reviews capital market regulations, disclosure obligations, and investor rights structures so that funding can proceed on a stable footing.

Advice on Corporate Law Procedures for Financial Activities

Major financial activities such as the acquisition and retirement of treasury shares, reduction of reserves, capital reduction, and dividend decisions are subject to strict procedures under the Commercial Act.

For these activities, Daeryun provides review of board and shareholder meeting procedures, refinement of articles of incorporation and internal rules, and advice on disclosure and filing procedures, helping companies reduce their legal risk.

Responding to Accounting Reviews and Financial Supervision

In an accounting review or supervisory investigation by the financial authorities, the focus falls on whether accounting standards were violated and on financial statement disclosure issues.

Daeryun provides legal advice across the full scope of responding to investigations by the financial authorities, including developing a response strategy for an accounting review, preparing supporting materials, and drafting written opinions.

Reviewing Corporate Financial Contracts and Designing Structures

Corporate financial activities involve a range of contracts, including investment agreements, financing agreements, and funding agreements.

Daeryun reviews the legal risks that can arise in drafting and negotiating these contracts and supports the design of stable transaction structures.

Responding to Corporate Accounting Disputes

Disputes over corporate accounting can arise, such as suspicions of window-dressing accounting, investor claims for damages, and sanctions following an accounting review.

Daeryun represents companies in a range of dispute resolution procedures, including civil litigation, administrative litigation, and criminal proceedings, handling accounting and finance disputes.

For integrated legal services that support stable corporate management, from financial structure design and funding strategy to accounting review responses and finance-related disputes, you may book a 🔗legal consultation with an accounting review attorney.