Pearson Korea Blog

Complete Guide to Korea Company Formation: Business Structures & Setup Process

Written by Zion Shim | Oct 24, 2024 6:28:29 AM

Since the country began liberalizing its markets in the 1990s, South Korea’s private sector has made impressive strides. By February 2022, foreign portfolio investments accounted for over 37% of the total market capitalization of the Korea Composite Stock Price Index (KOSPI), showcasing South Korea’s dedication to fostering innovation, advancing key industries, and creating a business-friendly environment. These factors make South Korea an attractive destination for foreign entrepreneurs seeking to establish and expand their businesses.

Selecting a Business Structure in South Korea

Choosing the right business structure is vital for optimizing operations, ownership, and tax management. Key options include:

  • Subsidiary: A separate legal entity owned by a parent company, offering independence and limited liability. This is often the preferred model for foreign firms entering the South Korean market.
  • Private Company (Yuhan Hoesa): A limited liability company (LLC) that provides management and tax flexibility. If foreign investment exceeds 100 million KRW, the company is classified as foreign-invested under the Foreign Investment Promotion Act, while still remaining a domestic entity under commercial law.
  • Branch Office: Operates as an extension of the parent company without independent legal status, subject to specific reporting requirements.
  • Liaison Office: Handles non-commercial activities such as market research and promotional tasks, and is regulated by the Foreign Exchange Transactions Act.

Selecting the right structure depends on factors like company size, industry, and goals. Consulting legal and financial experts in South Korea is crucial for making informed decisions and ensuring regulatory compliance.

Steps to Establish a Business in South Korea

  1. Choose a Company Name: The name must be in Korean, unique, and verified for availability through the Korean Intellectual Property Office (KIPO).
  2. Establish an Escrow Account and Allocate Capital: Open an escrow account and deposit the required capital to lay the financial groundwork for your company.
  3. Submit Internal Documents: Prepare key internal documents such as bylaws and resolutions for company registration.
  4. Obtain a Corporate Registration Certificate: This confirms your company’s legal status in South Korea.
  5. Acquire a Corporate Seal Card: Essential for signing official documents and conducting business transactions.
  6. Register with the Tax Office: Complete the registration process with the tax authorities to ensure full compliance.
  7. Open a Business Bank Account: Use your corporate registration certificate and identification to open a business bank account.
  8. Start Operations: After meeting all regulatory requirements, you are ready to begin operations and implement your business strategy in South Korea.

Conclusion

South Korea offers significant opportunities for businesses looking to enter its dynamic market. From selecting the appropriate business structure to navigating regulatory procedures, having a clear roadmap is essential for success.

At Pearson & Partners Korea, we offer expert guidance on company formation and tax accounting, helping businesses smoothly expand into South Korea. For tailored support, contact Pearson & Partners Korea to begin your journey in this thriving market.