Pearson Korea Blog

Company Formation in South Korea: A Comprehensive Guide

Written by Justin Kim | Oct 5, 2023 5:20:59 AM

If you're thinking about expanding your business into the dynamic and economically thriving South Korean market, it's crucial to grasp the process of establishing a company there. South Korea, with its strong economy, technological prowess, and strategic location in Asia, provides an appealing environment for both local and international entrepreneurs.

In this comprehensive guide, we will lead you through the intricacies of creating a company in South Korea, outlining the necessary steps, requirements, and considerations to help you embark on your business journey in this flourishing East Asian nation. Whether you intend to establish a Limited Liability Company (LLC), Joint Stock Company, or a Branch Office, this guide will offer valuable insights into the company formation process, enabling you to navigate the regulatory landscape with confidence.

Step 1: Select a Business Structure

In South Korea, businesses have the flexibility to adopt various company structures, each with distinct legal and operational characteristics. Your choice of structure can significantly impact your business operations, ownership, and taxation. Here are the four primary types of business structures commonly used in South Korea:

  1. Subsidiary: Forming a subsidiary involves creating a separate legal entity that is partially or wholly owned by a parent company. Subsidiaries enjoy a degree of independence and limited liability, making them a popular choice for foreign businesses expanding into South Korea. This structure allows for separate management and financial control while benefiting from the parent company's support.
  2. Private Company: A private company, also known as a Limited Liability Company (LLC), is referred to as a "Yuhan Hoesa" in South Korea. It offers limited liability protection to shareholders and is relatively easy to establish. Private companies are suitable for a wide range of businesses and provide flexibility in management and taxation.

These two business forms are recognized as foreign-invested companies under the Foreign Investment Promotion Act when they receive foreign direct investment (FDI) of 100 million KRW or more from foreign individuals. Nevertheless, despite receiving such foreign investment, these entities are treated as domestic corporations established under South Korean commercial law.

  1. Branch Office: Opening a branch office is an option for foreign companies looking to expand their operations to South Korea. A branch office is considered an extension of the parent company and does not have a separate legal identity. It operates under the same name as the parent company and is subject to specific reporting requirements.
  2. Liaison Office: A liaison office of a foreign corporation, on the other hand, is limited in its scope of activities. It cannot engage in profit-generating business activities but is primarily involved in activities such as market surveys and marketing efforts. It operates under the regulations of the Foreign Exchange Transactions Act as well.

The choice of business structure should align with your business objectives, size, and industry. Each structure has its advantages and disadvantages, including considerations related to taxation, liability, and administrative requirements. Consulting with legal and financial experts in South Korea is advisable to determine the most suitable structure for your specific needs.

Step 2: Select a Company Name

In the process of forming a company in South Korea, the first crucial step is selecting an appropriate company name. It's important to note that a Korean corporate name must consist of Korean characters; English alone cannot be used as a corporate name. Additionally, the company name should not be similar or identical to the names of existing registered entities, and it must not contain prohibited words. It is necessary to verify the name's regulation and availability through KIPO (Korean intellectual property office).

Step 3: Acquiring Business License

Once you have decided on your company's structure and name, the next crucial step is collecting and submitting all the required documents. These documents encompass articles of incorporation, identity documents of shareholders and directors, and other pertinent paperwork. They are essential for the formal registration of your company.

After document verification, you can proceed to obtain the necessary license. This license grants legal permission to engage in the specific business activities planned by the company. The requirements for obtaining a business license can vary depending on the type of business and industry.

Step 4: Bank Reporting, Opening an ESCRO Account

Notify the bank about your business activities and open an Escrow (ESCRO) account. This account serves as part of the financial arrangements required for company formation and operations, ensuring proper handling of financial transactions.

Step 5: Internal Document Preparation and Submission of Corporate Registration

Prepare internal documents such as bylaws and corporate resolutions. These documents are essential for the corporate registration process and help define the structure and operations of the company. Submit these documents as part of the registration process.

Step 6: Confirmation of Corporate Registration Certificate

Await confirmation of your corporate registration certificate. This certificate signifies that your company is legally recognized and registered in South Korea, with the necessary approvals to operate.

Step 7: Issuance of Corporate Seal Card

Receive the corporate seal card. The corporate seal is used for signing official documents and conducting business transactions in South Korea. It's a critical element of corporate identity.

Step 8: Business Registration with the Tax Office

Register your business with the tax office to ensure compliance with South Korean tax laws and regulations. This step is essential for fulfilling tax obligations associated with your company's operations. During this process, you will need to provide detailed information about your business, including its legal structure, location, and the nature of your activities. Additionally, you'll receive a tax identification number, which is crucial for all financial transactions and reporting to tax authorities.

Step 9: Opening a Corporate Bank Account

To do business in South Korea, it is necessary to open a bank account. This account plays a fundamental role in business transactions, such as receiving payments, paying expenses, and managing finances. Most banks in South Korea require identification documents and a business registration certificate for the account opening process. In this regard, Pearson & Partners can assist in opening a bank account remotely, eliminating the need to physically visit South Korea. This service streamlines the process and allows you to open a bank account for your business without the need for an in-person visit.

Step 10: Commencement of Operations

Once all the previous steps are completed, you can officially commence your business operations in South Korea, conducting your planned activities and fulfilling your business objectives. This is the moment when your business becomes fully operational, and you can start offering your products or services to customers in the South Korean market. It's important to keep accurate records of your business transactions from this point onward to ensure compliance with tax and financial regulations.

Conclusion

In conclusion, forming a company in South Korea offers a promising opportunity in a dynamic and economically vibrant market. Throughout this guide, we've outlined the essential steps, from choosing a company name to commencing operations. It's crucial to understand the significance of selecting the right business structure and adhering to regulatory requirements, including FDI recognition under the Foreign Investment Promotion Act.

Pearson & Partners offers complete assistance and direction throughout the entire process of establishing your company. Our team of seasoned experts is committed to ensuring your path to establishing a business in South Korea is seamless and prosperous. We provide expert guidance on legal prerequisites, regulatory adherence, and strategic decision-making, all with the goal of enhancing your prospects in this dynamic market. With Pearson & Partners as your partner, you can confidently navigate the intricacies of company formation and lay the groundwork for a successful business venture in South Korea. For further information, please don't hesitate to contact us.