South Korea Business Entity Formation | U.S. Taxpayers & FATCA – International Tax Lawyers
With several US Businesses, Entrepreneurs, and Investors seeking to expand their operations into foreign territories, South Korea has become one of the more popular destinations for US persons seeking to conduct business overseas.
The reason why South Korea has become more popular over the last 20 years is because in 1998, South Korea implemented the Foreign Investment Promotion Act (FIPA) in order to facilitate foreign investment and trade. Under the new FIPA laws, South Korea provides foreign investors with a broad range of incentives and subsidies, including financial support, grants, tax abatements, and other support.
When it comes to forming a business in South Korea there are various options to choose from – similar to the United States. For example, an investor seeking to form a business in Korea can form a sole proprietorship, a branch of a foreign corporation, subsidiary of foreign company, Local Corporation, Private Business or other type of business structure.
The following is a summary of the different types of business structures:
South Korea – Local Corporation
A Local Corporation is a common method for foreigners to form a company in South Korea. A local corporation is similar to a US corporation insofar as the liability is limited to the amount of money that is invested. It can be structured so that shareholders and management have different rights and responsibilities.
The local corporation provides more protection than the Private Business (see below), but overall the incorporation process in South Korea is more complex than here in the United States. In addition, the minimum investment requirement for local corporation is KRW 100 Million.
South Korea – Private Business
The formation of a private business in South Korea is different than the Local Corporation. The owner of a private business maintains full power to manage and control business. While this structure is simpler than forming a local corporation – with less regulations – it comes with its own share of concerns, including the fact that the owner of the business is fully liable for the debts of the company.
Unlike the local Corporation, the private businesses does not need to be registered and therefore the process to get the business up and growing is quicker.
South Korea – Branch
A foreign company may opt instead to form a branch of its company in South Korea and identifying a local individual as the representative for the Korean branch. Unlike a local corporation or private business, which are regulated under the Foreign Investment Promotion Act and Commercial Act, a branch is regulated by the foreign exchange control act and the branch must be registered at the local court.
There are two types of branches that may be formed in South Korea: a Branch and/or a Liaison Office. A Branch is authorized to conduct sales in South Korea while a Liaison Office is not authorized to conduct company sales. Rather, the liaison office performs more “business” operations, including developing business, market research, quality control, etc.
The distinction will impact the ability of South Korea to tax the branch.
Types of Business Structures:
The following is a summary of the different South Korean Business Structures.
General Partnership Company
In a General Partnership Company known as a “Hapmyung Hoesa” the owners/partners have full liability for the operations of the business. As a result, creditors of the GPC can go after the owners personally. This is the type of business structure to be utilized when there a limited number of owners, all of whom are participating in the business beyond mere investment.
Limited Partnership Company
The “Hapja Hoesa” is a Limited Partnership Company and closely resembles a US LLP. In the LPC, there is one “general” partner who has unlimited liability, with the remaining partners as “limited” partners who are only liable for their investment share.
Limited liability Company
An LLC in South Korea is called a “Yuhan Hoesa.” Structurally, the Yuhan Hoesa resembles a hybrid of an LLC and S-Corporation. While all the shareholders of the LLC can only be held liable up to the investment amount, the business resembles a closed corporation because the shares are not as easily transferable. The Yuhan Hoesa is usually a viable option for a small company.
Private Limited Company
In a Private Limited Company known as a “Yuhanchaek Imhoesa,” shareholders are only liable up to their investment amount into the company. A PLC operates similar to an LLC, but is organized as a trade association.
Joint Stock Company
A Joint Stock Company is called a “Chusikhoesa “ and it is similar in structure to a US Corporation in that it is a limited liability company in which the shareholders are only liable for their investment amount. The Joint Stock Company is generally limited to larger types of companies