Two ways lead to the birth of a joint venture; by establishing a joint venture enterprise or a partnership (inclusive of limited liability partnerships) with a domestic company. Running a joint venture requires implementation of an operative agreement, a shareholders’ agreement or a joint venture agreement.
It is for the involved participants to decide upon the contract of their choice. Generally, contracts signed between shareholders serve the purpose of joint investment in a joint-stock company.
There are several joint investments between local and foreign companies in South Korea that are in operation. They have been made as per the mutual agreements between the involved companies. Among these, the most widely used format is in which the management is directly involved through holding shares.
This is a scenario in which the joint investment is formed by a contract that is signed between shareholders. In normal circumstances, a joint investment comprises direct investment in operational companies.
This article gives an overview of joint ventures in Korea, including the available categories, the incorporation process and the essential licenses and paperwork.
Korea is open for joint ventures; corporate, as well as joint. To set up a corporate joint venture, the corporation that is owned and managed by the joint venture members or the designated directors, needs to be registered. A contractual joint venture is a business contract between the members of the joint venture, without incorporation of a company.
A case of a contractual joint venture is an anonymous association in which an anonymous member makes payment in the form of capital for the business of the owner and shares the profits and loss resulting from the business via a contract. The anonymous member holds no rights or liability concerning the proprietor’s activities regarding a third party.
Another instance of a contractual joint venture is a partnership business that has two or more individuals who might pay in the capital for the business gives rise to revenue and is registered as a joint business. Every member of the joint business will have an independent tax liability, according to his or her income.
After confirming that the minimal conditions have been fulfilled, along with the approval of the essential report(s), the joint venture company can be set up and payment of the foreign investment funds can be added to the joint venture in the light of the established process.
There is a format that is most preferred for a foreign-invested company. This format is known as the stock company. According to the Commercial Code of Korea, the least required first paid-in capital amount is 50 million Won. The Foreign Investment Promotion Act allows that the entire amount of foreign investment can be paid all at once or in installments across a realistic period.
The instruments of incorporation of the joint venture company are supposed to be in the Korean language. The Korean edition of the instruments of incorporation will be presented to the court, according to the registration process, and this Korean version will be applicable in terms of the legal substance of the instruments of incorporation.
According to the Commercial Code, a total of three organizers are required to incorporate a stock company. If the availability of such promoters is an issue for a foreign investor, the usual course followed is to use local counsel as promoters, each of whom takes a subscription of one share of stock.
As soon as the incorporation procedure is done, the promoters handover their corresponding shares of stock to the foreign investor. This is the usual process and the foreign investor is not exposed to any risk. Funds will have to be wired to a foreign exchange bank to make the subscription payment required to institute the joint venture company.
Among the documents required to register a foreign-invested company is the certificate of the purchase of foreign currency that comes from the bank and utilized towards the share subscription. This certificate is acquired at the time of conversion of the foreign currency funds into Korean Won.
The opening meeting of shareholders must be organized. In this meeting, the appointment of the directors and statutory auditor(s) needs to be decided. Concerning a stock company, a minimum of three directors and one statutory auditor is a must. A single or multiple directors need to take up the post of a ‘representative director’, appointed by the board of directors.
An individual who has the legal authority and is empowered by the instruments of incorporation to represent the company is known as a representative director. Every director, representative director and auditor are required to produce and present a letter of acceptance with proper signatures and certifications.
As far as foreign directors and statutory auditors are concerned, they must submit copies of their passports and other identity proofs. Nationalities or citizenships of the directors or auditor(s) is not a criterion in this case.
A corporate seal is required to be made and registered. Normally, these are made locally. The representative director is required apply to register the seal. Once the process is completed, the joint venture company and its directors, auditor and representative director can be registered with the local district court in the jurisdiction that houses the company's head office.
The joint venture company should be registered with the domestic tax office. Normally, the company gets its tax identification number (TIN) in not more than ten days from the application filing date.
Once it has been officially set up, a joint venture company must be approved by the government of Korea to be allowed to start its operations in the line of its business. There are a number of licenses, permissions and paperwork that might be essential, based on the kind of business operations.
If the company intends to run a factory under its name, it will require approval from the regional authorities of the area of location of the factory, as ruled by the Industrial Placement and Factory Construction Act. It normally takes up to 45 days to get a factory establishment approved, however, this duration can be cut short in some cases.
As the next step forward, the company is required to register the factory with the registry office. At the time the present factory facilities are leased, one can file an application for registration for ‘change of registration of factory’. This requires a document to be attached, saying that the lessee has leased the present factory premises from the individual who has registered the factory.
The procedure for applying for ‘change of registration of factory’ takes seven days.
To participate in export and import business activities (trading operations), a joint venture enterprise is required to submit a report with the Korea International Trade Association.
The report takes five days for processing since the day it has been filed.
As has been communicated by this article, the Korean government has framed its policy to multiply the amount of foreign investment in the country. Joint ventures will carry on with their expansion as largely used means of investment.
Without a pause, these present a greater scope of opportunity making it easy for foreign investors to set up such businesses, as a result of Korea’s business-friendly legal framework. Contact us to help you set up your joint venture in South Korea.