South Korea is known for its business-friendly environment, making it a top choice globally for business setup. However, the process requires careful adherence to specific requirements. For instance, all corporate documents and government interactions are conducted in Korean, so either fluency in Korean or support from a local professional is essential for smooth operations.
When forming a company in South Korea, some essential factors can significantly impact the process. For instance, a South Korean joint venture partner cannot serve as a nominee shareholder—an important rule for foreign incorporations. The influence of Confucian values is strong in Korean business culture, where seniority is deeply respected. Having experienced business partners in key meetings can foster stronger relationships with Korean clients and suppliers.
Companies must submit annual tax returns and audited financial statements, and professional assistance can be invaluable in managing these compliance requirements.
Under South Korea's Commercial Act, there are several ways to establish a business, with the primary options being private businesses, corporations, and offices. Corporations can be organized as a General Partnership (GP), Limited Liability Partnership (LLP), Joint Stock Corporation (JSC), or Limited Liability Corporation (LLC).
Key options include local corporations (JSC or LLC), private businesses, branch offices, and liaison offices. A JSC must have a board with at least one director, whereas an LLC does not require a board and is limited to 50 shareholders.
Private businesses offer full profit control but come with unlimited liability, while branch offices act as extensions of a foreign parent company and must be registered locally.
In partnerships, all members share unlimited liability and represent the company, meaning they are collectively responsible for its debts. Limited Partnerships offer an alternative, with some members having limited liability, allowing capital contributions without executive responsibilities.
For foreign investors looking to establish a JSC or LLC, a minimum investment of 100 million KRW is required. While no Korean resident ownership is necessary, JSCs and LLCs face stricter compliance requirements compared to branch offices. These structures require at least two partners, and although there are no nationality restrictions, certain industries do have limits on foreign investment.
Branch offices, classified as single legal entities with fewer investment restrictions, do not need formal incorporation and are suitable for smaller operations. They can later be transitioned into a local subsidiary if needed.
Liaison offices, ideal for market research or non-sales activities, operate under the parent company’s name and require only registration with the tax department and a unique business registration number.
For more details on establishing a business in South Korea, feel free to contact us at Pearson & Partners Korea!