Contribution in kind

Contribution in kind (현물출자) is one of the contributions for the incorporation or capital increase of a corporation. Actually it is performed by means of the real estate, securities such as shares of listed or unlisted corporations, intellectual property rights, and so on.

These might be detrimental to the capital base if it is abused or misused by promoters or managing directors. Therefore, the contribution in kind shall be provided in the articles of incorporation, stated in the application for shares (in case of incorporation), and subject to strict inspection.

The Commercial Act provides for the contribution in kind as stated in Subparagraph 2 of Article 290 (변태설립사항):

Article 290 (Particulars of Abnormal Incorporation)
 * The following matters shall be effective by being stated in the articles of incorporation:
 * 1. Any special benefits to be received by promoters and names of such promoters;
 * 2. Name of the person who is to make a contribution in kind, the type quantity and value of the subject-matter of such contribution in kind and the class and number of shares to be given in consideration thereof;
 * 3. The class, number and value of the property which was agreed to be transferred to the company after its incorporation and the name of the transferor; and
 * 4. The expenses for incorporation which are to be borne by the company and the amount of promoter’s compensation.

Key words
contribution in kind, articles of incorporation, start-up, promoter

How to Perform Contribution in Kind
Faithful contribution in kind would be conducive to the effective start-up and efficient expansion of business.

However, if a promoter fails to make a contribution in kind as anticipated, the whole process of incorporation could become null and void. It depends on the nature of contribution in kind. If it is replaceable by cash, it is reasonable to urge other promoters to pay in cash for such failed contribution in kind.

Article 295 (Payment of Subscription Price and Performance of Contribution in Kind in Promotion of Incorporation)
 * (1) In case where the promoters have subscribed for all of the shares to be issued at the time of incorporation, they shall without delay make full payment of the subscription price. In this case, they shall designate the bank or other financial institution at which the subscription price is to be paid and the place of payment. 
 * (2) A promoter who is to make a contribution in kind shall deliver the pertinent property, without delay, on the date fixed for the payment of the subscription price, and if registration, recording or the creation or transfer of a right is required, he shall prepare completely the documents thereon and deliver them to the company.

Ex Post Investigation and Report
The newly amended Act is believed to encourage contribution in kind by streamlining its procedure, previously subject to strict inspection and reporting by an inspector to the court. It is in line with the government promotion of business start-up and technical innovation.

The Presidential Decree to the amended Act notes that an appraisal by the courts is no longer necessary when issuing equity stocks in exchange for an in-kind contribution in a company if:


 * 1) The amount of the contribution in kind is less than 50 million won and accounts for less than 20 percent of the entire equity of the company;
 * 2) The value of the contribution in kind is less than the book value listed in the balance sheet of the issuing company; and
 * 3) Listed securities are contributed at a price equal to or less than the market price.

Article 299 (Investigation and Reporting by Inspector)
 * (1) The inspector shall investigate any matter set forth in Article 290 and whether or not the contribution in kind pursuant to Article 295 has been fulfilled and shall report the results thereof to the court. 
 * (2) Paragraph (1) shall not apply if any of the following Subparaphs is applicable:
 * 1. The total value of the property set forth in Subparagraphs 2 and 3 of Article 290 does not exceed one fifth of the capital, and further the amount (=50 million won) stated by the Presidential Decree;
 * 2. The property set forth in Subparagraphs 2 and 3 of Article 290 is securities tradable in the exchange, and its nominal value stated in the articles of incorporation does not exceed the current price calculated by the method as stated by the Presidential Decree;
 * 3. Other cases similar to Subparagraphs 1 and 2, and further stated by the Presidential Decree.
 * (3) The inspector shall, without delay after he has prepared a report of investigation under paragraph (1), deliver a copy of it to each promoter.
 * (4) Where any statement in the report of investigation is contrary to the true fact, the promoters may produce an explanatory note thereon to the court.
 * 

Certification of Contribution in Kind
Article 299-2 (Certification of Contribution in Kind, etc.)
 * With respect to the matters set forth in subparagraphs 1 and 4 of Article 290 the investigation and reporting by a notary public may substitute for the investigation of the inspector mentioned in Article 299 (1) and with respect to the matters set forth in subparagraphs 2 and 3 of Article 290 and the fulfillment of contribution in kind pursuant to Article 295, the appraisal by a certified appraiser may substitute for the investigation of the inspector mentioned in Article 299 (1). In this case, the notary public or appraiser shall report on the results of the investigation or appraisal to a court. 
 * [This Article Newly Inserted by Act No. 5053, Dec. 29, 1995]