Pearson Korea Blog

How to Establish a Company in South Korea: A Comprehensive Guide for Foreign Entrepreneurs

Written by TaeHyoeng Kim | Jul 2, 2024 6:58:04 AM

South Korea is an attractive destination for foreigners looking to establish businesses. Recognized as one of Asia's most advanced economies and strategically located between China and Japan, South Korea offers a streamlined company registration process. This guide outlines the procedures and requirements for registering a company in South Korea, catering to both budding entrepreneurs and seasoned business owners.

Types of Business Entities in South Korea

The types of companies available in South Korea depend on factors like company size and profile. The legal structure options vary based on whether you plan to be the sole owner or engage in partnerships with local or foreign investors. South Korea offers several business organization alternatives, including Joint Stock Company (Chusik Hoesa), Limited Liability Company (Yuhan Hoesa), Partnerships, Branch Offices, and Liaison Offices. Note that private businesses cannot use the term "hoesa," which means corporation, in their company names.

Joint Stock Company (Chusik Hoesa)

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

Limited Liability Company (Yuhan Hoesa)

  • The Limited Liability Company, or Yuhan Hoesa, is a favored 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. Opening 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 considered 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 (Hapmyeong Hoesa), Limited (Hapja Hoesa), and Limited Liability (Hapja Johap).
    • In a General Partnership, partners have unlimited liability and must unanimously agree on ownership transfers.
    • Limited Liability Partnerships combine features of traditional partnerships and LLCs, offering limited liability to members. Limited Partnerships do not have separate legal status.

Branch Office

  • Foreign business owners can establish a branch of their company 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, or representative offices, offer a straightforward entry into South Korea for foreign businesses. They're limited to non-commercial activities like market research and R&D, prohibited from generating revenue or conducting sales.

Understanding these business structures is crucial for foreign investors, as they influence liability, management, and operational decisions during the Korea company setup process.

Steps for Establishing a Company in South Korea

To initiate a company in South Korea, you must navigate through several essential steps. Upon selecting the appropriate legal structure, you should:

  • Reserve the desired trading name for your company.
  • Prepare the Articles of Association for private and public companies, if applicable.
  • Submit these documents, along with other necessary paperwork, to the Companies Register.
  • Open a company bank account with a preferred financial institution.
  • Obtain a tax identification number.
  • Apply for any required licenses pertinent to your industry.

Regardless of the chosen entity type, you must have at least one shareholder and one director, with no citizenship or residency prerequisites if they are not Korean residents.

Typically, business registration with the Trade Register in Korea takes approximately two weeks. However, the procedures for bank account opening and licensing may prolong the timeline for commencing operations, with the bank account setup and approval typically taking around three weeks.

For foreign investors seeking to launch a business in South Korea, consulting with local advisors is recommended. They can facilitate the necessary due diligence processes to expedite the incorporation of your chosen legal structure.

Requirements for Company Registration in South Korea

Minimum Share Capital Requirement

One of the notable advantages of selecting South Korea as a business destination is the absence of a mandatory minimum share capital for establishing a private company. However, it's imperative to allocate the requisite amount (at least USD 5,000), aligned with the specific sector in which the company intends to operate.

Special Requirements for Foreign Investors

For foreign entrepreneurs seeking full control over their business endeavors in Korea, several company registration options are available, including:

  • Local company incorporation
  • Establishment of a branch office by a foreign entity
  • Setup of a liaison office for a foreign enterprise

These entities fall under the purview of Foreign Direct Investment (FDI) laws and entail specific compliance requirements. Notably, for local companies, a minimum investment of KRW 100 million (approximately USD 90,000) is mandated. The incorporation process varies slightly, necessitating an initial notification to the Foreign Direct Investments Board to indicate the intention of establishing the company.

Moreover, businesses operating in Korea, even if not formally registered, or those engaging local staff, may be obliged to register and submit reports to Korean tax authorities.

For foreigners, acquiring an entrepreneur visa is essential, facilitating subsequent attainment of a Korean residence permit. For visitors intending to prolong their stay in South Korea beyond six months, obtaining alien registration cards is typically mandatory. These cards serve as a form of personal identification for expatriates in Korea and furnish a Resident Registration Number crucial for various activities like opening bank accounts or registering with local healthcare services. Additionally, acquiring this card represents the initial step toward potential permanent residency in South Korea.

Conclusion

South Korea attracts entrepreneurs due to its advanced economy and advantageous geographic position. Establishing a business is made easy with simplified registration procedures and a variety of company structures available. However, adherence to Foreign Direct Investment regulations, especially for foreign investors, is crucial.

Contact us for expert assistance in launching your business venture in Korea. Our team of experienced professionals is dedicated to helping entrepreneurs navigate the complexities of company formation, ensuring a smooth and successful start to your business journey.