Company formation in South Korea
South Korea has a good reputation among other countries worldwide when it comes to company formation. However, there are some basic precautions which must be taken into account when doing business in this country. For example, government transactions necessary for corporate documents completion are done in Korean. For this reason one may need a help of a professional who speaks this language in order to settle business affairs.
Doing business in South Korea
Another requirement is that the joint venture partner, if he or she is a South Korean shareholder shouldn't be a nominee in order to meet the rules of foreign company incorporation. Because of the Confucian ethics Koreans respect senior members of any community including business community; therefore senior business partners are welcomed to be present during important business meetings when concluding contracts with Korean clients or suppliers.
When incorporating a company in South Korea, such documents as tax return and annual audited financial statements should be submitted to country's authorities. In order to settle this annual statutory obligation in an effective manner one may need professional advice of Korean business specialist.
Business structures available in South Korea
There is a Korean Commercial Act the Commercial Code of Korea which provides for three main types of business organizations: private businesses, corporations and offices. Corporations are usually divided into General Partnership (GP), Limited Liability Partnership (LLP), Joint Stock Corporation (JSC) and Limited Liability Corporation (LLC).
In general there are several business structures available in South Korea these days: local corporation, private business, branch office and liaison office. There are two types of business ventures when it comes to establishing a local corporation (company): joint stock corporation (company) or JSC and a limited liability corporation (company) or LLC. The number of shareholders of LLC is usually not exceeding 50 and there are no requirements of board of directors. JSC must have at least one director who is elected and represents the board of directors.
Private business also includes the same amount of investment. Such business is often treated as Local Corporation due to owner taking all profits made while doing business and being a subject to unlimited liability. Branch office, on the other side, is when there is a representative of a foreign company in the frames of Korean branch office which must be registered with the court.
In Partnership members have unlimited liabilities, meaning that every member has the authority to represent the company being liable to repay the debts of the company in case it will not repay its debts. However, the transfer of an ownership is limited. In Limited Partnership members have unlimited liabilities and limited liabilities. Unlimited members have the authority to execute the company's corporate affairs. Limited members participate in the company only by making capital investments and do not have executive power.
Korean company formation requirements and restrictions
In case if a foreigner wants to register himself as a foreigner-invested business - JSC or LLC the investment amount not less than 100 million is needed. Shares in such companies not necessarily must be held by Korean resident shareholders. JSC and LLC have higher compliance and administrative requirements than other business structure referred to as Branch office. There must be minimum two partners who are not limited by nationality. There are restricted series of sectors for foreign investment existing.
Branch office usually is not recognized as direct foreign investment and is treated as a single legal entity with no limits regarding investment or ownership and no requirements regarding formal incorporation while having rights to engage in sales activity that is why they are best for small-scale operations with an opportunity to move to a local subsidiary later in case it will be needed. Branch office establishment procedure is simpler than as it is with the previous business structure described.
Liaison office usually undertakes non-sales function referred to as market research etc. while not carrying out business that generates profits in the country. It is a business activity which is usually conducted in the name of the parent company. It is quite simple to establish. Such business structure must have been registered at the tax department while being also granted a distinct number, stating business registration.
If you have questions regarding Korean company incorporation – do not hesitate to contact us!