South Korea is known for its supportive environment for business, attracting many companies to set up operations. However, establishing a business here involves paying close attention to essential details. For instance, all government-related corporate transactions are conducted in Korean, which often makes it beneficial to have a professional fluent in the language to help navigate the process effectively.
When creating a company in South Korea, it’s essential to remember that a South Korean joint venture partner cannot merely act as a nominee shareholder—a legal stipulation for foreign business incorporation. Additionally, influenced by Confucian values, Korean culture highly respects senior business figures. As a result, involving experienced partners in key meetings can improve negotiations with Korean clients and suppliers.
Company incorporation requires submitting documents like tax filings and annual audited financial statements to local authorities. Engaging a local professional can simplify these ongoing compliance requirements.
Under the Korean Commercial Act, businesses can choose among private businesses, corporations, and offices. Corporations are classified into General Partnerships (GP), Limited Liability Partnerships (LLP), Joint Stock Corporations (JSC), and Limited Liability Corporations (LLC).
Foreign businesses have various structure options in South Korea, including local corporations, private businesses, branch offices, and liaison offices. Local corporations can take the form of a Joint Stock Corporation (JSC) or a Limited Liability Corporation (LLC). An LLC typically has fewer than 50 shareholders and does not require a board of directors, while a JSC must have at least one director to represent the board.
Private businesses resemble local corporations, with owners retaining all profits but also bearing unlimited liability. A branch office, representing a foreign parent company, must be registered with the court.
In a General Partnership, all members share unlimited liability, meaning they are responsible for the company’s debts and represent the business. Ownership transfer is limited in this structure. A Limited Partnership allows some partners to have limited liability, letting them invest without having executive authority.
Foreign investors aiming to establish a JSC or LLC must invest at least 100 million KRW. While shares in these companies don’t need to be held by Korean residents, JSCs and LLCs face higher compliance and administrative requirements than branch offices. At least two partners are required, though certain industries may have foreign investment restrictions.
A branch office, which functions as a single legal entity with fewer investment or ownership restrictions, is suitable for smaller operations and can be converted into a local subsidiary if needed. It doesn’t require formal incorporation like other entities.
A liaison office can conduct non-sales activities, such as market research, and must operate under the parent company’s name. It requires registration with the tax office and a unique business registration number.
For any questions about starting a business in South Korea, reach out to Pearson & Partners Korea!