Comprehensive Guide to Establishing a Legal Entity in South Korea for Business Success

Venturing into the dynamic and thriving market of South Korea offers promising opportunities for global businesses. Whether you’re a burgeoning startup or an established multinational, setting up a legal entity in South Korea is a gateway to tapping into one of Asia’s most vibrant economies. However, this journey, filled with potential and promise, also comes with its unique set of challenges and complexities.

South Korea’s business environment is characterized by its robust infrastructure, innovative technology scene, and a highly skilled workforce. Yet, the path to establishing a successful legal entity here is paved with detailed procedures, legal considerations, and cultural nuances that demand careful navigation. Here’s a guide tailored for foreign businesses:

1. Determine the Type of Subsidiary

• Jusik Hoesa (Stock Company): Suitable for larger operations; offers shares to raise capital.
• Yuhan Hoesa (Limited Liability Company): Preferred for smaller ventures; simpler structure, limited liability for shareholders.
• For more details, read our guide here.

2. Name Reservation

The name reservation process is an essential first step in establishing a company in South Korea. This process ensures that the company name is unique and adheres to the regulations set by the Korean authorities. Here’s a brief overview:

• Choosing a Name:
  • Select a name for your company. The name should be distinctive and not similar to existing registered companies to avoid confusion.
  • It’s advisable to have a few alternative names in case your first choice is already taken.
• Checking Name Availability:
  • Before reservation, check the availability of the chosen name to ensure that it is not already in use or registered. This can typically be done online through the Supreme Court’s Legal Research and Training Institute’s website or other designated platforms.
• Online Application for Name Reservation:
  • Submit a name reservation application online. This process usually involves filling out an application form with details about the proposed company, including the company name and business activities.
  • A small fee may be required for the name reservation application.
• Approval Process:
  • The application is reviewed by the authorities. If the name meets the requirements and is not similar to any existing company names, it will likely be approved.
  • The duration for this process can vary but is generally not lengthy.
• Receiving Confirmation:
  • Once approved, you will receive a confirmation of your company name reservation. This confirmation is typically valid for a specific period (often around 3 months), within which you should complete the company registration process.
• Using the Reserved Name in Incorporation:
  • The reserved name must be used exactly as approved during the subsequent steps of the company incorporation process.

Important Considerations

• Regulatory Compliance: Ensure the chosen name complies with any specific regulations or restrictions related to company names in South Korea.
• Cultural Sensitivity: Consider cultural aspects and meanings, especially if the company aims to cater to the local market.
• Future Branding: Think about how the name translates into branding and marketing strategies for your business in South Korea.

The name reservation process is a crucial first step in the journey of establishing a company in South Korea, setting the foundation for your corporate identity and ensuring compliance with legal requirements.

3. Drafting Incorporation Documents

When setting up a company in South Korea, specific incorporation documents are required to be prepared and submitted to the relevant authorities. The nature of these documents can vary depending on the type of business entity being established, but here’s a general overview of the key documents typically required for a standard company incorporation, such as a Jusik Hoesa (stock company) or Yuhan Hoesa (limited liability company):

1. Articles of Incorporation

• A foundational document that outlines the company’s basic information, including its name, purpose, total amount of capital, details of shareholders (or members), and the structure of management.
• It also outlines the rights and obligations of the shareholders and the processes for meetings and decision-making.

2. Investment Report

• Required for foreign investors, detailing the investment being made in the company. This is part of the foreign investment notification to the Korean government.

3. Bank Certificate of Deposit

• Proof that the initial capital required for setting up the company has been deposited in a bank. This is particularly relevant for Jusik Hoesa.

4. Registration Application Form

• A form submitted to the district court for the registration of the company, which includes details such as the company’s address, business scope, and information about directors and auditors.

5. Personal Information of Directors and Officers

• Identification and personal information of the individuals who will serve as directors and, if applicable, auditors of the company.

6. Lease Agreement (If Applicable)

• If the company has a physical office space, a copy of the lease agreement may be required to prove the business address.

7. Other Specific Licenses or Permits (If Applicable)

• Depending on the nature of the business, additional industry-specific licenses or permits may be required.

8. Foreign Investment Declaration (For Foreign Investors)

• A declaration form that needs to be submitted to the Foreign Investment Promotion Agency or a designated foreign exchange bank.

Steps for Submission

• The documents are typically submitted to the district court or a commercial registration center.
• After submission and verification, the company is issued a Corporate Registration Certificate.

It’s important to note that this list provides a general guideline, and the specific requirements can vary. Additionally, it’s advisable to seek the assistance of legal and financial professionals in South Korea to ensure that all documents are correctly prepared and submitted in accordance with local laws and regulations.

4. Capital Requirements

In South Korea, the capital requirements for setting up a new company can vary depending on the type of business entity being established. Here’s an overview of the capital requirements for the most common types of business entities:

1. Jusik Hoesa (Stock Company)

• Minimum Capital Requirement: Traditionally, South Korea had minimum capital requirements for Jusik Hoesa, but recent changes in the law have eliminated these minimums. However, the amount of capital should still be reasonable and sufficient to cover initial business operations and expenses.
• Issuance of Shares: The capital is raised through the issuance of shares. The value of these shares should be determined realistically based on the company’s business plan and expected expenses.

2. Yuhan Hoesa (Limited Liability Company)

• Minimum Capital Requirement: For Yuhan Hoesa, there is technically no minimum capital requirement. You can establish a Yuhan Hoesa with a minimal amount, even as low as KRW 1.
• Contributions by Members: The capital contributions are made by the members (shareholders) of the company. Like in a Jusik Hoesa, the capital should be sufficient to support the initial operations of the business.

3. Branch Offices or Liaison Offices

• Capital for Branch Offices: There are no specific capital requirements for setting up a branch office of a foreign company in South Korea. However, the foreign parent company must allocate enough funds to the branch office to ensure smooth operations.
• Liaison Offices: Liaison offices, which typically do not engage in direct sales, may not have strict capital requirements but should have enough funds to cover operational expenses.

General Considerations:

• Realistic Capital Allocation: Regardless of the type of entity, it is crucial to allocate enough capital to cover initial business costs, including office space, employee salaries, legal fees, and other start-up expenses.
• Proof of Capital: When registering a company, you may need to provide proof of capital deposit in a South Korean bank.
• Capital Increase: Companies can increase their capital post-establishment through various means, like additional investments or issuing new shares.

The capital requirements for setting up a company in South Korea are relatively flexible, especially for small to medium-sized enterprises. The key is ensuring that the company has enough capital to sustain its business operations and meet its initial expenses.

5. Opening a Bank Account and Capital Deposit

Setting up a corporate bank account is a crucial step for a wholly-owned subsidiary operating in South Korea. This process involves several stages and requires gathering various documents. Here’s a brief overview:

1. Choosing a Bank

• Research and Selection: Choose a bank that suits the subsidiary’s business needs. Consider factors like international banking capabilities (if required), range of services, fees, and ease of access.
• Major Banks: South Korea has several major banks known for their business banking services, including Kookmin Bank (KB), Shinhan Bank, Woori Bank, and Hana Bank.

2. Preparation of Required Documents

• Corporate Registration Certificate: Obtain this from the district court after the incorporation process.
• Articles of Incorporation: The document that outlines the structure and purpose of your subsidiary.
• Board Resolution: A resolution from the board of directors authorizing the opening of the account and designating those who have signatory authority.
• Identification of Account Signatories: Valid identification (passport) of the individuals who will have the authority to operate the account.
• Business License: If applicable, depending on the type of business.
• Proof of Address: This can be a lease or rental agreement of the company’s office space in South Korea.

3. Account Opening Application

• Visit the chosen bank in person to submit the application for opening a corporate account. It’s often required for the account signatories and sometimes the company representative to be present.
• The bank will provide an application form and may request additional information about the business, such as projected turnover, source of funds, and business plan.

4. Verification and Compliance Checks

• Banks in South Korea conduct thorough due diligence as part of their ‘Know Your Customer’ (KYC) compliance. This may include background checks on the company and its directors.

5. Deposit of Initial Funds

• Once the account is approved and opened, deposit the initial funds as required by the bank. This amount varies depending on the bank.

6. Setting Up Online Banking and Other Services

• Enroll in online banking services for easier management of the account. Also, consider setting up additional services that the bank offers, such as credit lines, overdraft facilities, or merchant services if needed.

7. Regular Compliance and Reporting

• Depending on the nature of your business and the volume of transactions, there may be regulatory reporting requirements. Ensure compliance with these requirements to maintain good standing with the bank.

Tips for Foreign Companies

• Language Barrier: Be prepared for potential language barriers. It might be helpful to have someone fluent in Korean to assist with the process.
• Professional Assistance: Consider obtaining assistance from a local financial consultant or legal advisor to streamline the process.

Setting up a corporate bank account in South Korea requires careful preparation and attention to compliance requirements. It’s a critical step in establishing a wholly-owned subsidiary’s operational framework in the country.

6. Founders’ Meeting

• Conduct a meeting of the promoters to ratify the Articles of Incorporation and appoint directors and auditors. Document the meeting’s minutes.

7. Company Registration

• Register the company at the district court. Submit the Articles of Incorporation, proof of capital deposit, and founders’ meeting minutes.

8. Corporate Registration Certificate

• After registration, obtain the Corporate Registration Certificate from the court.

9. Tax Registration

• Register with the local tax office within 20 days of incorporation. This includes VAT registration.

10. Social Security Registrations

• Register for National Pension, Health Insurance, Employment Insurance, and Workers’ Compensation Insurance.

Cultural and Market Understanding

• Gain an understanding of South Korean business culture and market dynamics to ensure smooth operations.

Timeframe

• The process can take a few weeks to months, depending on various factors like the type of business and documentation.

Ongoing Compliance

• Stay informed about South Korean corporate laws, tax regulations, and annual compliance requirements.

This guide provides a comprehensive overview for foreign companies looking to establish a wholly-owned subsidiary in South Korea. It’s important to note that while the process is systematic, it requires careful planning and consideration of both legal and cultural factors. Professional advice is highly recommended to navigate the intricacies of setting up and operating a business in a foreign legal environment. To read more, visit Invest Korea.

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This article does not constitute legal advice.