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Geerdes & Kim Publications
How to Protect Yourself in the 'New Economy'
The Korean community here in the Atlanta area is booming, both with people moving into the area, and with business development, be it commercial real estate, small businesses, residential real estate or larger corporations. Such robust growth gives Korean immigrants in the Atlanta area increased opportunities for investment, but it also increases the risk of loss and even fraud. This is not unique to us Koreans; any rapid growth in a business community can create some chaos before everyone becomes better attuned to functioning in the changed setting. However, during this type of transition, one immediate negative effect is that certain business practices that were workable in a small-knit community are no longer practicable in a larger, more complex context. For example, we as Korean immigrants are used to doing business deals via a simple "handshake," and an oral agreement rather than by writing everything down on paper. Some people might even take offense if you ask them to write everything down and sign it, or have it reviewed by a professional like an attorney or accountant. Also, we are used to relying heavily on "reputation" and "word-of-mouth" as to a person's integrity in business, or even their capital worth. Again, some people take offense if you ask to see the actual financial documents, stating, "I'm a fellow Korean, don't you trust me?" This problem is compounded if the people are within the same business or community organizations, personal circle of acquaintances, or even church. However, as communities grow, it is inevitable that accountability based on one's word and reputation becomes more difficult, and even untenable. It is also much easier in a larger population for those few dishonest people to defraud fellow Koreans, exploiting the culture of honor, trust and reputation.
What is the solution? This does not mean everyone should suddenly become paranoid and suspicious of every newcomer or one's own neighbor. It simply means we must adapt to the new environment in very practical ways, in order to protect ourselves and our community.
1. Even in Minor Financial Transactions, Write It Down
It is better for all parties involved to have any business transaction written down, dated and signed. If there is ever a question or argument about the terms of a certain promise or agreement, it is less likely that the personal relationship between the people involved will become antagonistic if there is documentation of what was said, so that there is no room for argument. I always tell my clients, "even if it's on a piece of napkin, it's better than even the most ardently spoken words and the most vigorous handshake." This is because not only do documents keep things more clear between parties, but if the situation must go to a law suit, generally it is extremely difficult to prove anything in court without some sort of writing. The document can be written in Korean, as long as the terms are clear, specific, and there are names and signatures, as well as the date. Of course, everyone should have the contact information, business and residential, of the other parties. Legally, the document has more force is there is a witness signature and it is notarized. Anyone over eight-teen years of age and of sound mind can serve as a witness, and notarization is generally free if you do it at the bank in which you have an account. No matter who it is, you should be careful of entering into even the smallest of business deals with people who refuse have things written, and who refuse to sign. Logically speaking, if the person intends to honor the promise or agreement, what is the disadvantage in signing? Rather than a sign of distrust, writing things down and signing is a way of making sure that the personal relationship is protected from any possible confusion and conflict in the business transaction.
2. In Major Financial Transactions, Get Your Own Attorney
Contracts may seem simple, but if there is ever a dispute, every word, number and
even a comma counts. In any legal proceeding, courts will look to the final contract signed by all parties as the best evidence of what actually happened. Even if "everyone knew" there were other, or different terms, what is written in the contract is the primary and at times only source of information that a judge will allow into court. Attorneys know this, and therefore should make sure that every possible aspect of the business transaction is covered in the language of the contract, and done so clearly. However, if both sides of the agreement, for example the seller and the buyer, go to just one attorney for the contract, that means that the attorney is not going make sure you receive the best deal and protection under law possible, because he or she has to remain neutral. So even if one attorney drafts the contract for both sides, you should still have another attorney that serves only you, to review the contract to make sure that the contract is fair to you and contains the terms that you wanted. Never sign anything without reading it yourself. If it is in English, make sure you have someone translate every term of the contract, and not just summarize, before you sign. Even if a broker or agent tells you everything is "all right," you should always read the contract yourself, or better, read it with your attorney.
3. Do Not Use Checks in Lieu of Contracts, Promissory Notes and Security Agreements.
It is common practice among the Korean immigrant community to give to one another signed checks in order to show indebtedness. However, legally speaking, a check is a "demand note." This means that as soon as you sign the check and give it to an individual, either blank or with their name on it, they have the right to deposit the check immediately. If the check bounces, even though you told them not to deposit the check, you are still responsible for paying that amount. As long as they have the bounced check, they can sue you in civil and criminal court for the amount on the check. Of course, you will have the opportunity to defend yourself in court, but this means you have to incur expensive attorney costs, and there is no guarantee that you will win, even if you are telling the absolute truth. The safer method is to sign a promissory note, that clearly states what amount is due to whom, who will pay, when it will paid, and the manner in which it will be paid. This is appropriate only if you are receiving a loan or lending money without interest. If interest or some sort of gain applies to the lender, the document may amount to a what the government considers as a "Security," in which very specific laws apply. This is explained in paragraph 4. Again, everyone must sign the promissory note. Also, you can secure the promissory note, by signing a document which states that if the note is not paid on time, then certain secured assets, like a house, car, a business or equipment, can be seized. It is ideal for an attorney to draft such documents. Just remember, I can tell you as a litigation specialist, it is always cheaper to hire an attorney before something goes wrong, rather than after. The attorney can also file the promissory note and security agreement in the state and county system so that any other creditors or buyers know about the debt, and the holder of the debt protects his place in line of collecting. Finally, if you ever give cash for payment on a check, two things must happen. First, you should always receive the check back. Second, you and the person who received the cash should sign a document stating that cash was paid, again including the date and exact amount. Witness signatures as well as notarization, of course, strengthen the legal force of that document if there is ever an issue later. This is because even if you paid cash for a bounced check, unless there is documented evidence of that payment, whoever is holding that bounced check can still sue you for it.
4. If You Are Investing Into a Corporation, Never Give Your Money Until You See Corporate Documents and Documentary Proof of Your Ownership Share
There are currently many investment schemes for small and large corporations in
the Korean community in Georgia. Before investing into a corporation, you should always obtain advice from your own lawyer or stockbroker, and not just the broker, agent, or lawyer for the owners of the corporation. As a guideline, a few basic things are required in such investments. If you receive a promissory note in exchange for your cash investment into the corporation, make sure the note is not a "short-term note" of less than 9 months. This is because a promissory note that is payable in less than 9 months does not have to be registered with the government. Notes with terms longer than 9 months have to be registered, which means that a professional has at least reviewed the basics of the note for legality. Also, only certain licensed individuals such as licensed stock brokers are permitted to sell such securities. However, even with a registered note reviewed by attorneys, there is no guarantee that you will get that money back, if the company goes bankrupt, has no assets, and dissolves. This is why you should also check the financial documents of the company, including actual proof of any large loans, contracts, and/or leases that the company purports to have received, before you invest. Your own personal accountant, attorney, and/or stockbroker can help you review the financial documents if you are not sure of how to interpret them. Also, you should always ask to see "corporate documents" of the corporation. Some basic corporate documents include but are not limited to the Articles of Organization, By-Laws or Operating Agreement, Partnership Agreements, Stock Certificates, and Shareholder Agreements. Within these types of documents, there should be information on who will be managing the corporation, how the corporation will be financed, what powers the investors have in the corporation, how and when information will be given to investors about the corporation, and the planned major business activities of the corporation. These are legal documents that can be lengthy and complicated, and unless you have a lot of experience working with these types of documents, you should receive professional legal help in reviewing them.
These are just some basic guidelines. If you have access to the internet, and are proficient in English or have someone who can assist you, some helpful resources are on the following websites:
As our community grows, we also need to access the resources and opportunities of the larger, American community, and speak in a united voice to receive better services for our Korean immigrant community. It is not a betrayal of custom or culture to adapt our business practices to that of the American legal and financial system, in order to protect our hard-earned assets, our friends and family, and the Korean community of Atlanta as a whole.
Written by: Irene I. Kim, Esq.
GEERDES & KIM, LLC
Translated into Korean and submitted to The Korea Times, January 2006.
To be published in March, 2006.
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