Establishing a Company in Korea: Key Requirements and Considerations

On April 3, 2024, the Ministry of Trade, Industry, and Energy, in collaboration with the KOTRA Foreign Investment Ombudsman, hosted a meeting with CEOs from foreign-invested companies and representatives from foreign chambers of commerce in Korea. This gathering aimed to discuss initiatives designed to improve Korea’s investment climate and encourage Foreign Direct Investment (FDI). The government has set an ambitious goal to attract $35 billion in foreign investment for 2024 and is committed to implementing measures that facilitate increased investment from international firms.

The Minister of Trade, Industry, and Energy highlighted the government's increased funding and raised financial support limits for foreign-invested companies operating in Korea. Additionally, new special legislation has been introduced to help these companies attract local talent. This article outlines the necessary steps and considerations for foreign investors and entrepreneurs looking to establish a company in Korea.

Requirements for Company Setup in Korea

To successfully register a company in Korea, several prerequisites must be fulfilled:

1. Capital Allocation: Determine the initial capital required for your business, which varies depending on the selected legal structure and industry. It’s essential to secure the necessary funds or devise a financing strategy.
2. Business Proposal: Develop a comprehensive business proposal that outlines your business's nature, market analysis, target demographics, and financial projections. This document should reflect your industry knowledge and outline your strategic growth plans.
3. Identification Documentation: Gather identification documents for all involved individuals, such as passports or identity cards. Foreign nationals may need additional documents, like a valid visa or Alien Registration Card (ARC).
4. Office Establishment: A registered office address is mandatory for Korean companies. This can be a physical location or a virtual office that provides a professional business address and support services without requiring a physical presence.

Types of Business Entities in Korea

Foreign investors in South Korea can choose from seven distinct business structures:

1. Limited Company: The most common entity among foreign investors, functioning as a for-profit corporation with limited liability for shareholders.
2. General Partnership: Each partner has unlimited liability and shares responsibility for debts, with ownership transfers needing unanimous consent.
3. Limited Liability Partnership: Partners can choose between limited or unlimited liability roles, with limited partners restricted from making operational decisions.
4. Joint Stock Company: Shareholders’ liabilities are limited to their invested capital, with shares transferable upon board approval and annual shareholder meetings required.
5. Branch Office: Operates under the parent company's jurisdiction, conducting local business activities without being a separate legal entity.
6. Representative Office: Fully foreign-owned and managed, this entity serves for promotional and market research purposes, but is prohibited from engaging in direct sales activities in South Korea.

Understanding these business structures is essential for foreign investors, as they significantly influence liability, management, and operational decisions during the registration process.

Considerations for Registering a Business in South Korea

1. Choosing the Right Business Structure: Evaluate the various structures available, including limited companies, general partnerships, limited liability partnerships, joint stock companies, branch offices, and representative offices. Selecting the right structure is vital, considering liability and management alignment with your business objectives.
2. Selecting a Company Name: Choose a unique and memorable name that reflects your business identity and is not already in use by another entity in South Korea.
3. Registering the Company Name: Register your chosen company name with the South Korean company registry to ensure its uniqueness and prevent unauthorized usage.
4. Drafting the Articles of Association: Prepare articles of association detailing the company's purpose, shareholders' and directors' rights and responsibilities, and decision-making procedures. Notarizing this document is necessary before proceeding with the incorporation process.
5. Submission of Required Documents: Submit the articles of association and other necessary documents, including the South Korean certificate of incorporation, to the relevant authorities, along with the incorporation fees.
6. Obtaining a Business License: After incorporation, secure a business license from the appropriate authorities to operate legally in South Korea.
7. Registering for Tax and Social Security: Register your company with the National Tax Service and the National Pension Service for tax and social security purposes, ensuring compliance with legal obligations.
8. Compliance with Ongoing Legal and Reporting Requirements: Maintain ongoing compliance with legal and reporting obligations post-incorporation, including annual reports and shareholder meetings, which are essential for preserving your legal standing.

It is advisable to seek professional legal and financial guidance when establishing a business in South Korea. Expert advice can help you navigate regulatory requirements and ensure proper registration and compliance with applicable laws.

Steps to Set Up a Limited Liability Company in Korea

Foreign individuals interested in establishing a limited liability company in Korea can follow these standard procedures for registration:

1. Notify the Foreign Exchange Bank (FEB): Inform the FEB of your investment intentions in South Korea by submitting a notification form and proof of identity. Proxy representation with power of attorney is allowed.
2. Transfer of Share Capital: Transfer your investment capital by either remitting funds from overseas to a temporary account at an FEB branch or depositing it in person. Obtain a certificate confirming the bank's custody of the capital, which is crucial for the following steps.
3. Register the Company: File for company incorporation with the Korean court, following specific requirements based on the company type and invested capital. Provide necessary documentation regarding directors, auditors, and shareholders. Upon approval, you will receive a certificate of incorporation.
4. Register with the Tax Office: Complete company registration with the tax office, submitting the required documents based on your specific circumstances.
5. Open a Corporate Bank Account in South Korea: Transfer the invested capital from the temporary account to your company’s designated bank account.
6. Register as a Foreign Direct Investment Company with FEB: Finally, register your company as a Foreign Direct Investment (FDI) entity with the FEB within 30 days of completing the capital payment. Submit an application form, certificate of exchange/deposit, and incorporation registration transcript.

Conclusion

Establishing a business in South Korea requires navigating government registration procedures, securing a business license, and choosing a company type that aligns with your business characteristics and shareholder structure. Understanding the complexities and potential challenges is crucial when considering company formation in South Korea's dynamic economy and evolving regulatory landscape.

At Pearson & Partners Korea, we specialize in guiding businesses through the process of setting up in South Korea, offering tailored expertise to meet your specific needs. With extensive experience in managing the intricacies of company incorporation, we ensure a streamlined process with the South Korean Companies Registry. Contact us today for more information and personalized assistance as you embark on your journey to incorporate a company in South Korea.

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