How to Set Up a Company in Korea: A Comprehensive Guide for Foreign Investors in 2024
On April 3, 2024, the Ministry of Trade, Industry, and Energy, in collaboration with the KOTRA Foreign Investment Ombudsman, convened a meeting with CEOs of foreign-invested companies and representatives from foreign chambers of commerce in Korea. The purpose of the meeting was to discuss initiatives aimed at enhancing Korea's investment environment and promoting Foreign Direct Investment (FDI). The government aims to attract $35 billion in foreign investment in 2024 and has committed to facilitating necessary measures to encourage increased investment from foreign companies.
The Minister of Trade, Industry, and Energy emphasized, "Korea has increased government funding and raised the maximum financial support limits for foreign-invested companies investing in Korea. Furthermore, new special legislation has been enacted to assist foreign-invested companies in securing local talent." This article will provide a detailed explanation of the procedures for establishing a company in Korea for foreign investors and entrepreneurs.
Korea Company Setup Requirements
To successfully complete a Korea company setup, several prerequisites must be met. These include:
1. Capital Allocation: It is essential to determine the initial capital required for your business, which varies based on the chosen legal structure and industry. Securing access to necessary funds or devising a financing strategy is imperative.
2. Business Proposal: Crafting a comprehensive business proposal is crucial. This document should detail the business's nature, market analysis, target demographics, and financial projections. It showcases your industry understanding and outlines strategic growth plans.
3. Identification Documentation: Prepare identification documents for all involved individuals, such as passports or identity cards. Foreign nationals may require additional documentation, such as a valid visa or Alien Registration Card (ARC).
4. Office Establishment: Korean companies must have a registered office address. This can be a physical location or a virtual office, providing a professional business address and support services without requiring physical presence.
Types of Business Entities in Korea
Foreign investors looking to complete a Korea company setup have seven distinct business structures to choose from:
1. Limited Company: This is the most common entity for foreign investors, operating as a for-profit corporation where shareholders have limited liability.
2. General Partnership: In this structure, each partner has unlimited liability and shares joint responsibility for debts. Ownership transfers require unanimous approval from all partners.
3. Limited Liability Partnership: Partners in this entity can choose between limited or unlimited liability roles, with limited partners being restricted from making operational decisions.
4. Joint Stock Company: Shareholders' liabilities are limited to their invested capital. Shares are transferable with board approval, and annual shareholder meetings are mandatory.
5. Branch Office: This operates under the parent company's jurisdiction and conducts local business activities without being a separate legal entity.
6. Representative Office: Fully foreign-owned and managed, this office serves promotional and market research purposes and is restricted from engaging in direct sales activities in South Korea.
Understanding these business structures is crucial for foreign investors in South Korea, as they influence liability, management, and operational decisions during the Korea company setup process.
Considerations for Registering a Business in South Korea
1. Selecting the Appropriate Business Structure
One of the first and most crucial steps in the Korea company setup process is choosing the right business structure. Options include limited liability companies, general partnerships, limited partnerships, joint-stock companies, branch offices, and representative offices. Each structure has different implications for liability, management, and operational flexibility, so it’s important to select one that aligns with your business goals.
2. Choosing a Unique Company Name
It’s important to pick a distinctive and memorable company name that represents your business well and is not already in use by another entity in South Korea.
3. Registering the Company Name
Once you’ve selected a company name, you must register it with the South Korean company registry to ensure it is unique and to prevent other entities from using the same name.
4. Drafting the Articles of Incorporation
You will need to prepare the Articles of Incorporation, which outline the company's objectives, the rights and duties of shareholders and directors, and the decision-making processes. This document must be notarized before you can proceed with the registration process in South Korea.
5. Submitting Required Documents
Submit the notarized Articles of Incorporation along with other required documents, such as the South Korean certificate of incorporation, to the appropriate authorities. This step also includes the payment of the incorporation fees.
6. Obtaining a Business License
After successfully completing the incorporation process, you must obtain a business license from the relevant authorities to legally operate your business in South Korea.
7. Registering for Taxes and Social Security
Register your company with the National Tax Service for tax purposes and with the National Pension Service for social security contributions. This step is essential for fulfilling legal obligations and managing employee benefits.
8. Ensuring Ongoing Legal and Reporting Compliance
Post-incorporation, you must continue to meet legal and reporting requirements. This includes filing annual reports and holding regular shareholder meetings to maintain your company’s legal status.
Seeking professional legal and financial advice during the Korea company setup process can help you navigate regulatory requirements and ensure that all aspects of your registration are completed correctly.
Steps for Establishing a Limited Liability Company in Korea
Foreign individuals interested in setting up a limited liability company in Korea can follow these standard steps for company registration:
1. Notify the Foreign Exchange Bank (FEB)
Submit a notification form and proof of identity to a Foreign Exchange Bank (FEB) branch to inform them of your intention to invest in South Korea. You may use a proxy with power of attorney if necessary.
2. Transfer Share Capital
Transfer your investment capital to South Korea by either remitting funds from abroad to a temporary account at an FEB branch or physically depositing the funds. Obtain a certificate of deposit from the bank, which is essential for the next steps.
3. Register the Company
File the necessary documents for company incorporation with the Korean court, including information about directors, auditors, and shareholders. After approval, you will receive a certificate of incorporation.
4. Register with the Tax Office
Complete your company registration with the tax office by submitting the relevant documents based on your specific situation.
5. Open a Corporate Bank Account
Transfer the capital from the temporary account to your company's new corporate bank account in South Korea.
6. Register as a Foreign Direct Investment (FDI) Entity with FEB
Within 30 days of completing the capital payment, register your company as an FDI entity with the FEB. This involves submitting an application form, the certificate of exchange/deposit, and a transcript of the incorporation registration.
Conclusion
Setting up a limited liability company in Korea involves several key steps, from choosing the right business structure to complying with ongoing legal obligations. Selecting the most suitable business entity and understanding the regulatory requirements are vital for a successful company formation in South Korea’s dynamic economy.
Pearson & Partners offers expert guidance for navigating the Korea company setup process, with tailored services to meet your specific needs. Leverage our extensive experience in company incorporation to ensure a smooth and efficient registration process. Contact us today for more information and personalized assistance with your South Korean business setup.
