[Korean Legal Lens] Types of Companies

There are five types of companies in Korea. However, I can only accurately remember two types off the top of my head: Joint Stock Company (????, Chusik-hoesa) and Limited Liability Company (????, Yuhan-hoesa) - and it's generally sufficient to know just these two types.

Natural Person(???) vs Juristic Person(??)

Before exploring the types of companies, let's take a step back to the distinction between a "natural person" (???) and a "juristic person" (??) as introduced in the Civil Act (??). A natural person refers to an individual human being (like me!), with real flesh, blood, and inherent legal rights and responsibilities. In contrast, a juristic person represents an entity, such as a corporation or organization, recognized by law as having its own separate legal identity. This allows them to own property, pay taxes, enter into contracts, and conduct business independently of the individuals involved.

The Civil Act specifically delineates the formation of non-profit-making juristic persons, focusing on entities not engaged in profit-generating activities. Conversely, the Commercial Act (??) governs the formation and governance of companies (??)—juristic persons created for profit-making purposes.

Types of Companies: Chusik-hoesa and Beyond

Businesses can choose from several company structures - these include Joint Stock Company (????, Chusik-hoesa), Limited Liability Company (????, Yuhan-hoesa), Yuhan Chaegim Hoesa (??????), General Partnership Company (????, Hapmyeong-hoesa), and Limited Partnership Company (????, Hapja-hoesa).

Among the approximately 950,000 companies in Korea, 95% of the companies are Chusik-hoesa, while 4.6% are Yuhan-hoesa.

? Joint Stock Company (????, Chusik-hoesa)

Chusik-hoesa is akin to a C corporation in the U.S. It offers limited liability to shareholders and the ability to issue various types of shares and bonds. The transferability of shares adds flexibility in ownership and investment.

In Chusik-hoesa, ownership is represented by shares (??), and the owners are shareholders (??). Governance is overseen by the Board of Directors (???), while shareholders participate in the Shareholders' Meeting (????), focusing on electing directors and approving significant corporate decisions such as mergers and business acquisitions.

? Limited Liability Company (????, Yuhan-hoesa)

Yuhan-hoesa is similar to an LLC in the U.S. Yuhan-hoesa's ownership is divided into units (?), with owners known as members (??). Its governance revolves around the Members' Meeting (????), involving all members in the company's overall management.

Yuhan-hoesa's simpler management structure and fewer formalities make it suitable for small to medium-sized businesses. Historically, its private nature, without the requirement for public disclosure (??) or external audit (????), made it attractive for foreign companies like Google, Apple, and Microsoft, which have incorporated their Korean subsidiaries as Yuhan-hoesa. However, a significant reform in 2018 to the External Audit Act (?????) now requires disclosure and external audit for Yuhan-hoesa exceeding certain sales or size thresholds.

The choice between Chusik-hoesa and Yuhan-hoesa often hinges on the company's size, investment needs, and the preference for privacy and simplicity in operations.

Korean Legal Lens is a series designed to provide practical insights into Korean law, culture, and language. The views and insights expressed are solely my own and do not represent those of my employer.