Starting a Business in South Korea
Pearson & Partners Korea
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Establishing a Business in South Korea
South Korea is recognized worldwide for its business-friendly environment, making it an appealing location for company formation. However, setting up a business here requires careful attention to key details. For example, all government transactions related to corporate documentation are conducted in Korean, often requiring a professional fluent in the language for efficient navigation through the procedures.
Insights into Doing Business in South Korea
When establishing a company in South Korea, it is important to note that any South Korean joint venture partner cannot serve solely as a nominee shareholder, as this is a legal requirement for foreign business incorporation. Due to the influence of Confucian values, Korean culture holds senior members of the business community in high regard. Therefore, including experienced business partners in major meetings can facilitate negotiations with Korean clients and suppliers.
Company incorporation requires submitting documents such as tax filings and annual audited financial statements to local authorities. To streamline these annual compliance obligations, seeking advice from a local business professional is often advantageous.
Business Structure Options in South Korea
The Korean Commercial Act provides three primary types of business organizations: private businesses, corporations, and offices. Corporations are further divided into General Partnerships (GP), Limited Liability Partnerships (LLP), Joint Stock Corporations (JSC), and Limited Liability Corporations (LLC).
Various business structures are available for foreign entities in South Korea, including local corporations, private businesses, branch offices, and liaison offices. When forming a local corporation, companies can opt for a Joint Stock Corporation (JSC) or a Limited Liability Corporation (LLC). An LLC typically has fewer than 50 shareholders and does not require a board of directors, whereas a JSC must appoint at least one director to represent the board.
Private businesses are similar to local corporations, with owners retaining all profits but also facing unlimited liability. A branch office, representing a foreign parent company, must register with the court.
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Business Structure Details
In a General Partnership, all members share unlimited liability, meaning they represent the company and are responsible for its debts. Ownership transfer in this structure is restricted. In a Limited Partnership, some partners have unlimited liability, while others have limited liability, allowing limited partners to invest without executive authority.
Company Formation Requirements and Restrictions
Foreign investors seeking to establish a JSC or LLC must invest at least 100 million KRW. While shares in these companies don’t need to be held by Korean residents, JSCs and LLCs must meet higher compliance and administrative requirements than branch offices. A minimum of two partners, regardless of nationality, is required, though specific sectors may have foreign investment restrictions.
A branch office, considered a single legal entity without stringent investment or ownership restrictions, is ideal for smaller operations and can later be converted into a local subsidiary if needed. Unlike other entities, it does not require formal incorporation.
A liaison office can engage in non-sales activities such as market research and must operate under the parent company's name. It requires registration with the tax office and a unique business registration number.
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