Guide to Establishing a Company in South Korea: Steps and Requirements

South Korea stands out as a compelling destination for foreigners looking to establish businesses. It not only boasts one of Asia's most advanced economies, as part of the Four Asian Tigers, but also occupies a strategic position between economic powerhouses China and Japan. Consequently, South Korea is highly favored for business setup, thanks to its efficient company registration processes. Whether you're a new entrepreneur or an experienced business owner, this guide will outline the procedures and requirements for registering a company in South Korea.

Types of Business Entities in South Korea

In South Korea, the types of companies available to entrepreneurs depend on factors such as company size and structure. The options vary whether you intend to operate as the sole owner or in partnership with local or foreign investors. South Korea offers various forms of business entities, including Joint Stock Company (Chusik Hoesa), Limited Liability Company (Yuhan Hoesa), Partnerships (General, Limited, and Limited Liability), Branch Offices, and Liaison Offices.

It's important to note that the term "hoesa," meaning corporation, cannot be used in the name of a privately owned business in South Korea.

Joint Stock Company (Chusik Hoesa)

• The Chusik Hoesa, or Joint Stock Company, is the predominant business structure in South Korea and a popular choice among foreign investors establishing subsidiaries. This entity allows for the issuance of public shares, with shareholders' liabilities limited to their invested capital. Shares can be transferred freely with board approval, and holding at least one general shareholder meeting annually is mandatory.

Limited Liability Company (Yuhan Hoesa)

• The Yuhan Hoesa, or Limited Liability Company, is the preferred business structure in South Korea. It operates as a closely held entity with a maximum of 50 shareholders. Shareholders enjoy limited liability, meaning they are not personally responsible for company debts beyond their investment. Establishing a Yuhan Hoesa requires minimal criteria, including at least one director and shareholder of any nationality, no minimum capital requirement, and a registered office address. Under the Foreign Investment Promotion Law (FIPL), a foreign-owned local corporation is classified as a foreign investor and must invest at least 100 million won.

Partnerships

• Partnerships involve two or more individuals sharing profits and losses. South Korea recognizes three types: General Partnership (Hapmyeong Hoesa), Limited Partnership (Hapja Hoesa), and Limited Liability Partnership (Hapja Johap).
• In a General Partnership, partners have unlimited liability and must unanimously agree on ownership transfers.
• A Limited Liability Partnership combines characteristics of traditional partnerships and LLCs, providing limited liability to members. A Limited Partnership does not have separate legal status.

Branch Office

• Foreign business owners can establish a branch office in South Korea to enter its markets. Branches operate as extensions of the parent company and share its liabilities. There are no restrictions on investments or ownership.

Liaison Offices

• Liaison offices, also known as representative offices, offer a straightforward entry into South Korea for foreign businesses. They are limited to non-commercial activities such as market research and R&D, and are prohibited from generating revenue or conducting sales.

This comprehensive overview equips foreign investors with the necessary knowledge to navigate South Korea's diverse business environment, from choosing the right business entity to understanding legal obligations and market entry strategies.

Steps to Establishing a Company in South Korea

Starting a company in South Korea involves navigating several crucial steps. After selecting the appropriate legal structure, follow these essential procedures:

• Reserve your company's trading name.
• Prepare the Articles of Association as required.
• Submit all necessary documents to the Companies Register.
• Open a company bank account.
• Obtain a tax identification number.
• Apply for any industry-specific licenses.

Regardless of the entity type chosen, you'll need at least one shareholder and one director, with no residency or citizenship requirements if they are non-Korean residents.

Business registration with the Trade Register typically takes about two weeks. However, the processes for bank account setup and obtaining licenses may extend this timeline to approximately three weeks before commencing operations.

For foreign investors looking to establish a business in South Korea, consulting with local advisors is recommended. They can expedite due diligence processes and facilitate incorporation under your chosen legal structure.

Requirements for Company Registration in South Korea

Minimum Share Capital Requirement

One advantage of South Korea as a business destination is the absence of a mandatory minimum share capital for private companies. However, sufficient capital allocation (minimum USD 5,000) relevant to your industry is necessary.

Special Requirements for Foreign Investors

Foreign entrepreneurs can opt for various registration options, including:

• Incorporating a local company
• Establishing a branch office of a foreign entity
• Setting up a liaison office for a foreign enterprise

These options are governed by Foreign Direct Investment laws and entail specific compliance requirements. Local company incorporation, for instance, mandates an initial investment of at least KRW 100 million (about USD 90,000) and requires notification to the Foreign Direct Investments Board.

Businesses operating in South Korea, even without formal registration, or those employing local staff, may need to report to Korean tax authorities.

For foreign nationals, obtaining an entrepreneur visa is essential, leading to eligibility for a Korean residence permit. Alien registration cards are also necessary for extended stays beyond six months, serving as identification for expatriates and providing access to local services.

Conclusion

South Korea's advanced economy and strategic location make it an attractive destination for entrepreneurs. With streamlined registration processes and diverse company structures available, starting a business is straightforward. However, compliance with Foreign Direct Investment regulations is crucial, particularly for foreign investors.

Contact us for expert guidance on launching your business in Korea. Our experienced team ensures a smooth start to your business journey, navigating complexities and maximizing your chances of success.