Company Formation and Business Operations in South Korea

South Korea is poised to implement significant reforms in its foreign exchange market, marking the most substantial changes since the 1998 financial crisis. These reforms include extending trading hours until 2 AM to coincide with the London market close and progressing towards 24-hour trading in the future. Notably, approved overseas financial institutions will gain direct access to Seoul's forex market, reducing reliance on non-deliverable forward (NDF) markets. Major banks like KB Kookmin, Shinhan, Hana, and Woori are expanding their teams in anticipation of these changes, intending to register their overseas branches as foreign financial institutions (RFIs) to strengthen their presence in Seoul and enhance global operations in South Korean won.

Additionally, the introduction of competitive corporate forex electronic trading platforms, such as Hana Bank's 'Hana FX Trading System,' is expected to stabilize the market by diversifying supply sources and reducing exchange rate volatility. These reforms present opportunities for foreign investors to expand their market footprint, optimize trading strategies, and explore new business ventures in South Korea's evolving forex market.

Choosing a Business Structure

Businesses in South Korea have several company structures to consider, each with distinct legal and operational features impacting business operations, ownership, and taxation. Here are the primary types commonly used:

1) Subsidiary Establishment

Forming a subsidiary establishes a separate legal entity, either wholly or partially owned by a parent company. Subsidiaries benefit from autonomy and limited liability, making them attractive for foreign businesses entering South Korea. This structure allows independent management and financial control while leveraging support from the parent company.

2) Private Company (Yuhan Hoesa)

Also known as a Limited Liability Company (LLC), a private company offers shareholders limited liability protection and is relatively straightforward to establish. Private companies provide flexibility in management and tax arrangements. Foreign direct investment (FDI) exceeding 100 million KRW classifies private companies as foreign-invested under the Foreign Investment Promotion Act, yet they remain treated as domestic corporations under South Korean commercial law.

3) Branch Office Setup

Establishing a branch office allows foreign companies to expand into South Korea as an extension of the parent company, without separate legal identity but subject to specific reporting requirements.

4) Liaison Office Formation

A liaison office of a foreign corporation is restricted in its activities, typically focusing on tasks like market research and promotional activities, adhering to regulations under the Foreign Exchange Transactions Act.

Choosing the appropriate business structure should align with specific goals, company size, and industry dynamics. Each option offers unique benefits and drawbacks concerning taxation, liability, and administrative responsibilities. Consulting with legal and financial experts in South Korea is crucial to navigate these complexities and make informed decisions tailored to your business needs. Understanding these nuances ensures readiness for success in South Korea's dynamic market environment.

Choosing a Company Name

Selecting a suitable company name is an essential initial step when forming a company in South Korea. The name must be in Korean characters as English-only names are not permissible. Ensure the name is distinctive, not similar to existing registered entities, and does not include prohibited terms. Verification of compliance and availability can be done through the Korean Intellectual Property Office (KIPO).

Establishing an ESCRO Account and Allocating Paid-Up Capital

Inform your bank about business activities and establish an Escrow (ESCRO) account critical for managing financial transactions during company formation and ongoing operations. Deposit the required paid-up capital into this account to establish a robust financial foundation for your company.

Preparing and Submitting Internal Documents for Company Formation

Prepare internal documents such as bylaws and corporate resolutions, essential for defining your company's structure and operations. These documents are necessary for the registration process and ensure compliance with regulatory requirements.

Obtaining the Corporate Registration Certificate

Await the issuance of your corporate registration certificate, confirming the legal recognition and formal establishment of your company in South Korea. This document validates your company's authorization to operate lawfully.

Acquiring the Corporate Seal Card

Obtain the corporate seal card, essential for signing official documents and conducting business transactions. This card holds significant importance in corporate affairs within South Korea.

Registering with the Tax Office

Complete registration with the tax office to comply with South Korean tax laws. This process involves providing detailed business information, including legal structure, location, and operational specifics, ensuring adherence to tax obligations. Upon registration, you will obtain a tax identification number necessary for financial transactions and reporting to tax authorities.

Opening a Business Bank Account

Establish a business bank account, crucial for conducting operations in South Korea. This account serves as the central hub for transactions, including receiving payments, disbursing expenses, and managing finances. South Korean banks typically require identification documents and a business registration certificate to open an account. Pearson & Partners offers remote assistance for this process, simplifying the account setup without the need for in-person visits to South Korea.

Starting Business Operations

With these steps completed, commence your business activities in South Korea. This marks the initiation of your planned strategies and the pursuit of your business objectives. Your company is now fully operational, enabling you to offer products or services to customers in the South Korean market. It is crucial to maintain accurate records of all transactions to ensure compliance with tax and financial regulations.

Conclusion

Starting a company in South Korea presents a promising opportunity in a dynamic and vibrant market. This guide has outlined essential steps, from selecting a company name to launching operations strategically. Choosing the right business structure and complying with regulatory requirements, including those under the Foreign Investment Promotion Act for foreign direct investment (FDI), are critical.

For comprehensive support throughout the company formation process, Pearson & Partners offers specialized services in incorporation and tax accounting. Our experienced professionals are dedicated to facilitating a smooth and successful establishment of your company in South Korea. Contact us to receive tailored assistance aligned with your specific needs and objectives.