Setting up a Company in South Korea

 

(e-mail) skkimlaw@naver.com

 

Setting up a Company in South Korea

 

Are you considering doing business in South Korea? This guide will look at three different options: a branch, a liaison office, and a company.

 

 

1. Branches and Liaison Offices

Branches and liaison offices are not legal entities separate from their parent company. In other words, they are like the arms or legs of their parent company. So, if you do not want to establish a separate company in South Korea, you can choose to set up a branch or a liaison office.

 

1-A. Comparison of Branches and Liaison Offices

The main difference between branches and liaison offices is that branches can engage in commercial activities while liaison offices cannot. Therefore, branches must pay VAT and corporate tax on sales generated in South Korea.

	Branch	Liaison Office
Commercial activities in South Korea	Permitted	Not permitted Only non-commercial activities such as liaising, market research, and R&D activities are permitted.
Report establishment to the bank in South Korea	Required
Register with the South Korean registry office	Required	Not required
Register with the South Korean tax office	Required
Pay VAT and corporate tax in South Korea	Yes	No

 

1-B. Establishment Process

Step	Period	Branch	Liaison Office
1	Varies	1. Prepare documents such as a power of attorney, decision letter, consent letter, passport copy, head office registration certificate, seal registration form, and proof of residence. Documents must be notarized and confirmed by an apostille or consulate. 2. Rent an office in South Korea.	1. Prepare documents such as a power of attorney, decision letter, consent letter, passport copy, and head office registration certificate. Documents must be notarized and confirmed by an apostille or consulate. 2. Rent an office in South Korea.
2	1 week	Report establishment to any major commercial bank in South Korea.
3	1 week	Register the branch with the South Korean registry office.	N/A
4	Varies	Obtain relevant licenses and permits, e.g., for firms in the finance, food, energy, construction, logistics, pharmaceuticals, and cosmetics industries.	N/A
5	1 week	Register with the South Korean tax office.
6	1 week	Open a bank account associated with the organization.

 

 

2. Company

Foreigners can establish companies in South Korea. If you already have a company in another country, you can establish a South Korean subsidiary of that company. A subsidiary is a legally separate entity from its parent company. Companies can be 100% owned by you or co-owned with other investors who can be both South Koreans and non-South Koreans.

 

2-A. What Type of Company to Choose

The South Korean Commercial Act (Article 170) allows for the establishment of five types of companies. Among them, the three types of companies in which shareholders have limited liability are stock companies (Articles 288 to 542-13), limited companies (Articles 543 to 613), and limited liability companies (Articles 287-2 to 287-45). The following chart compares their characteristics.

	Stock Company	Limited Company	Limited Liability Company
Korean name	주식회사 (株式會社, pronounced 'jusig-hoesa')	유한회사 (有限會社, pronounced 'yuhan-hoesa')	유한책임회사 (有限責任會社, pronounced 'yuhanchaegim-hoesa')
Similar to	US: corporation China: 股份有限公司 Japan: 株式会社 (kabushiki gaisha) Germany: Aktiengesellschaft (AG)	China: 有限责任公司 Germany: Gesellschaft mit beschränkter Haftung (GmbH)	US: limited liability company (LLC) China: 有限责任公司 Japan: 合同会社 (godo gaisha)
Commercial Act Article limiting shareholders’ liability	Article 331	Article 553	Article 287-7
Shareholder's voting rights	One vote per share (Article 369 (1)) Up to 25% of total shares can be issued as non-voting shares (Article 344-3)	One vote per share (Article 575) This can be changed in the articles of incorporation.	One vote per member
How shares can be transferred	Freely (Article 335)	Freely (Article 556)	Only with the consent of all other members (Article 287-8)
Whether bonds can be issued	Permitted (Articles 469 to 516-11)	Not permitted	Not permitted
DART website disclosures	Companies that exceed a specific size, which is measured in various ways, must disclose their financial statements on the DART website. (Act on External Audit of Stock Companies)		Not required
Number of companies established in 2021	117,448 (92.84%)	8,305 (6.56%)	385 (0.30%)

Most companies are founded as stock companies. This is especially common for companies whose founders eventually want to receive venture capital investment. Only stock companies can go public. However, if you want to keep the company private, limited or limited liability companies may be better choices.

 

2-B. Comparison of Limited and Limited Liability Companies
Limited and limited liability companies are similar but have different origins and disclosure obligations. Limited companies originate from German Gesellschaft mit beschränkter Haftung (GmbH) that were introduced with the passage of the South Korean Commercial Act. Limited liability companies were added by the South Korean Commercial Act in 2011 and are modeled on US limited liability companies (LLC).

 

Limited liability companies are not obligated to disclose their financial statements regardless of their size. They are uncommon because they are relatively new. However, many American businesspeople establish limited liability companies because they are familiar and have no financial information disclosure obligations.

 

2-C. Company Incorporation Process

Step	Period	Process
1	Varies	1. Prepare documents such as a power of attorney, consent letter, passport copy, seal registration form, and proof of residence. Documents must be notarized and confirmed by an apostille or consulate. 2. Rent an office in South Korea.
2	1 week	1. Make your investment. 2. Before sending money to South Korea, report your investment to any major commercial bank in South Korea as appropriate. i) Non-resident ownership < USD 5,000: no reporting obligation ii) Non-citizen ownership ≥ KRW 100,000,000 AND non-citizen ownership ≥ 10% of shares: register with the bank as a foreign-invested company iii) All other non-resident investments: report non-resident securities acquisition to the bank
3	1 week	Register with the South Korean registry office.
4	Varies	Obtain relevant licenses and permits, e.g., for firms in the finance, food, energy, construction, logistics, pharmaceuticals, and cosmetics industries.
5	1 week	Register with the South Korean tax office.
6	1 week	Open a bank account associated with the organization.

 

 

3. Checklist

Please refer to the article below for items to check when setting up a company in South Korea.

[Company Register] Checklist for Setting up a Company in South Korea

 

 

KIM Sang Kyoon (김상균, 金相均), Attorney at Law (Seoul Bar Association)

He specialized in corporate law and wrote a book about commercial registration. He has conducted a wide range of commercial activities, including incorporating corporations, raising capital in redeemable convertible preferred stock (RCPS), and providing corporate advice. He provides advisory and transactional services in both Korean and English to domestic and foreign clients. Please contact him to find out how he can help you achieve your business goals in South Korea.

 

Email (Korean and English): skkimlaw@naver.com

Telephone (Korean only): +82-2-596-6720

Fax (Korean and English): +82-2-6008-6761
Address: 9th floor, 113 Seochojungang-ro, Seocho-gu, Seoul 06644, South Korea