How to Start a Business in South Korea: Company Formation Guide for Foreign Investors

Since the market liberalization efforts in the 1990s, the country’s thriving private sector has made remarkable progress. Foreign portfolio investments accounted for over 37% of the Korea Composite Stock Price Index (KOSPI)'s total market capitalization as of February 2022, reflecting South Korea’s commitment to fostering innovation, advancing industries, and creating a business-friendly environment. These factors make South Korea an ideal destination for foreigners looking to establish and grow their businesses.

Choosing a Business Structure in South Korea

Selecting the appropriate business structure is crucial for streamlining operations, determining ownership, and managing taxation. The primary options include:

1. Subsidiary: A distinct legal entity owned by a parent company, providing independence and limited liability. This structure is a preferred choice for foreign companies entering South Korea.
2. Private Company (Yuhan Hoesa): A limited liability company (LLC) offering flexibility in both management and taxation. If foreign direct investments exceed 100 million KRW, it is classified as foreign-invested under the Foreign Investment Promotion Act, though it remains a domestic entity under commercial law.
3. Branch Office: Functions as an extension of the parent company without independent legal status and must meet specific reporting requirements.
4. Liaison Office: Handles non-commercial activities such as market research and promotional work, governed by the Foreign Exchange Transactions Act.

Choosing the right structure depends on factors such as company size, industry sector, and business goals. Consulting legal and financial experts in South Korea is essential for informed decision-making and ensuring compliance with regulations.

Steps to Start a Business in South Korea

1. Choosing a Company Name: The name must be in Korean, unique, and verified through the Korean Intellectual Property Office (KIPO) for availability.
2. Establishing an Escrow Account and Allocating Capital: Open an escrow account and deposit the required capital, providing the financial foundation for your business.
3. Submitting Internal Documents: Prepare necessary internal documents like bylaws and resolutions, which are required for company registration.
4. Corporate Registration Certificate: Once received, this certificate confirms your company's legal existence in South Korea.
5. Acquiring the Corporate Seal Card: This card is necessary for signing official documents and conducting formal business transactions.
6. Registering with the Tax Office: Complete the business registration process with the tax authorities to ensure compliance by providing your company details.
7. Opening a Business Bank Account: Use your corporate registration certificate and identification documents to open a business bank account.
8. Starting Business Operations: After fulfilling all requirements, you can officially begin operations and implement your business strategies in South Korea.

Conclusion

Establishing a business in South Korea presents significant opportunities in a thriving market. From selecting the appropriate business structure to navigating regulatory processes, a clear understanding of the steps involved is key.

Pearson & Partners Korea provides expert assistance in company formation and tax accounting, supporting businesses in successfully expanding in South Korea. For personalized support, visit Pearson & Partners and begin your journey toward a successful business venture in this dynamic market.