Establishing a Company in South Korea
Pearson & Partners Korea
"To make a world without barriers for business expansion."
South Korea is well-regarded globally for its business-friendly environment, making it an attractive destination for company formation. However, there are essential considerations to keep in mind when establishing a business here. For instance, all government transactions related to corporate documentation are conducted in Korean, which often necessitates the assistance of a professional fluent in the language to navigate these processes effectively.
Navigating Business in South Korea
When forming a company in South Korea, it’s crucial that any South Korean joint venture partner is not a nominee shareholder, as this is a requirement for foreign company incorporation. Given the influence of Confucian values, Koreans highly respect senior members of any business community. Therefore, having experienced business partners present during significant meetings can enhance negotiations with Korean clients and suppliers.
Incorporating a company requires submitting documents such as tax returns and annual audited financial statements to the authorities. To manage these annual compliance obligations efficiently, seeking professional advice from a local business expert is often beneficial.
Available Business Structures in South Korea
The Korean Commercial Act outlines three primary types of business organizations: private businesses, corporations, and offices. Corporations are further categorized into General Partnerships (GP), Limited Liability Partnerships (LLP), Joint Stock Corporations (JSC), and Limited Liability Corporations (LLC).
Currently, several business structures are available in South Korea, including local corporations, private businesses, branch offices, and liaison offices. When establishing a local corporation, businesses can choose between a Joint Stock Corporation (JSC) or a Limited Liability Corporation (LLC). An LLC typically has no more than 50 shareholders and does not require a board of directors, while a JSC must have at least one elected director to represent the board.
Private businesses are treated similarly to local corporations, as owners retain all profits and face unlimited liability. In contrast, a branch office represents a foreign company and must be registered with the court.
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Business Structures Explained
In a Partnership, all members have unlimited liabilities, meaning they can represent the company and are responsible for repaying its debts. However, ownership transfer is limited. In a Limited Partnership, some members have unlimited liability, while others have limited liability, allowing limited partners to contribute capital without executive power.
Requirements and Restrictions for Company Formation
Foreign investors looking to establish a JSC or LLC must invest a minimum of 100 million KRW. Shares in these companies do not need to be held by Korean residents, but JSCs and LLCs face stricter compliance and administrative requirements compared to branch offices. At least two partners, unrestricted by nationality, are required, and certain sectors have investment restrictions for foreigners.
A branch office is not considered direct foreign investment, functioning as a single legal entity without strict investment or ownership limits, and it does not require formal incorporation. This structure is ideal for small-scale operations, with the potential to transition to a local subsidiary later.
A liaison office typically engages in non-sales activities such as market research, without generating profits within the country. It operates under the parent company's name and is easy to establish, requiring registration with the tax department and obtaining a distinct business registration number.
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