What will your new Company in Korea be?

South Korea is among the world’s most powerful economies of the present time. Apart from having an extremely flourishing domestic economy, it also welcomes foreign investment. To start a company or an extension to an already established business, South Korea offers the best for your business.

Although every sector is lined with opportunities, it is a clever move to seek assistance from a corporate service provider who can guide you in deciding a new venture. Your targets, tax effects and South Korean trade rules also influence your choice of business.

Majority of the entrepreneurs start with a liaison office because it is simple to register, apart from registration with the national bank and the tax office. A liaison office is under the control of the Foreign Exchange Transactions Act and the Commercial Act. You can also set up a foreign company branch office in South Korea.

Let us take a look at the three main ways in which foreign entrepreneurs can start a business in Korea.

1. Korea FDI Company (Foreign Capital-Invested Company) Setup

To start a business in Korea, foreign investors must evaluate each company type and its features. The KCC (Korean Commercial Code) characterizes companies into five types. Here is a summary of the distinct features of each company type in Korea.

A. Hapmyung Hoesa (합명회사)

• Members of a hapmyung hoesa have full liability. If there is a breach by hapmyung hoesa, every member is collectively, as well as individually absolutely liable to its creditors.
• Broadly, each member has the right to run and represent a hapmyung hoesa. Hence, a hapmyung hoesa has no member meetings or board of directors.

B.  Hapja Hoesa (합자회사)

• A hapja hoesa comprises members with unlimited liability and also those with limited liability. However, the limited liability members are only liable for their capital contributions, while unlimited liability members have unlimited liability.
• Only unlimited liability members are eligible for managing and representing the hapja hoesa, while limited liability members are only entitled to profits from their capital investments.

C.  Yuhan Chaekim Hoesa (유한책임회사)

• In a yuhan chaekim hoesa, the member’s liability remains limited to the capital they contribute, while their management and representation rights are equal for every member. This is the reason that members manage their yuhan chaekim hoesa according to their mutual agreements.
• There is no least capital proviso to set up a yuhan chaekim hoesa. Though a manager is required, yuhan chaekim hoesa has no legal obligation to hire a director or auditor, under the KCC.

D. Chusik Hoesa (Joint Stock Company; 주식회사)

• A chusik hoesa is one of the most common types of company setup in Korea. Members (i.e., shareholders) have their liability limited to their capital contribution to the chusik hoesa. Shares of a chusik hoesa can be transferred freely after the board approves them as per its article of incorporation.

Moreover, a chusik hoesa can collect funds from the public by opening their shares to the public or through the issuance of debt securities.

• Business decisions are collectively taken by all shareholders. The board of directors is appointed by shareholders at the shareholders’ meeting. The board is entitled to carry out all business operations. Additionally, a chusik hoesa must set up an audit committee or designate an auditor for the company’s business administration.

E. Yuhan Hoesa (Limited Company; 유한회사)

• Similar to the shareholders of a chusik hoesa, the members of a yuhan hoesa have limited liability. Yet, a yuhan hoesa cannot open its shares or debenture securities to the general public. Therefore, a yuhan hoesa is smaller than a chusik hoesa.

• A yuhan hoesa results from the meeting of members, just like a meeting of shareholders for a chusik hoesa. A yuhan hoesa requires a minimum of one director but not an auditor or audit committee as per the KCC.

2. Branch Office Setup

Any foreign firm – apart from those operating in sectors with limited foreign investment, can have a branch office in Korea. Once it is registered at the respective tax office and the court, your branch office is considered established. The process of setting up a branch office takes two to three weeks after all the required paperwork from the head office is completed and submitted.

There may be a need for further authorization from respective government departments, subject to the concerned industry’s policies. For instance, banks, securities companies and other types of financial institutions have to be authorized by the Financial Services Commission. Branch offices, on the lines of the Foreign Exchange Transactions Law. They can be set up as either repatriating or non-repatriating entities.

3. Liaison Office Setup

Foreign firms can set up liaison (representative) offices in Korea. As against Joint Stock and limited liability companies, the operations of the liaison offices are more restricted. They are not legally permitted to carry out trading or income generation activities within Korea.

However, liaison offices can perform activities that do not generate profits, such as marketing or promotion, market survey, evaluation of business prospects and research and development. It is completely illegal for them to sell goods or services. Foreign companies involved in any sector of the Korean economy can set up a liaison office, according to the Foreign Exchange Transactions Act.

Conclusion

A subsidiary company, branch office or liaison company are the three most popular forms of entry for foreign entrepreneurs into South Korea. A foreign-owned domestic corporation is seen as a ‘foreign investment’ under the Foreign Investment Promotion Act in South Korea.

After the launch of ‘Start-Biz’; registration and establishing a company can now be done from a single window that can connect with various bodies from registration to tax. This integrated system does not seem to register branch and liaison offices. This makes subsidiary corporations the easiest and most secure type of a business setup for foreign investors.

For more information on setting up your business in Korea, contact us directly. Our local corporate specialist will be able to guide you through the process of company registration and settlement in Korea.