[Published on January 17, 2024 edition of the "Korean Law Insights" column in the Korea Daily’s Economic Expert Section]
Mainly choose between a corporation (Joint Stock Company) or a limited liability company (LLC)
Consider management, business operations, investment, listing plans and etc
As an economic advisory committee member at the LA Consulate General, I often receive inquiries about establishing a company in Korea to conduct business. Many factors are determined based on the specific type of business, and various procedures may need to be prepared simultaneously, with some overlapping. However, the very first step is drafting the articles of incorporation. One of the most important decisions in this process is determining the legal structure of the company to be established in Korea.
If a company already established in the U.S. wishes to set up a business in Korea, it must first decide whether to establish a subsidiary or open a branch office before determining the specific type of company. Essentially, a subsidiary is a separate legal entity from its U.S. parent company, meaning the parent company does not bear liability for the subsidiary’s obligations. In contrast, a branch office is considered an extension of the U.S. parent company, making the parent company responsible for the branch’s obligations. Additionally, there are differences in applicable laws, the process of bringing in funds from the U.S. parent company, and the remittance of profits from the Korean entity to the U.S.
If a decision is made to establish a subsidiary or a new company in Korea, the next step is to determine the specific type of company. Under the Korean Commercial Code, the available company types include a joint-stock company (Jusik Hoesa), a limited company (Yuhan Hoesa), a limited liability company (Yuhan Chaegim Hoesa), a general partnership (Hapmyeong Hoesa), and a limited partnership (Hapja Hoesa). However, since general partnerships and limited partnerships are generally not suitable for conducting U.S.-Korea business, the choice is typically narrowed down to a joint-stock company, a limited company, or a limited liability company.
A limited company (Yuhan Hoesa) and a limited liability company (Yuhan Chaegim Hoesa) share many similarities, but they have a key difference. In a limited company, members hold equity in proportion to their capital contribution, similar to shareholders in a joint-stock company, with voting rights based on the number of shares they own. In contrast, members of a limited liability company each have one vote per person, regardless of their capital contribution. Because of this structure, a limited liability company operates similarly to a partnership, resulting in a highly restrictive management structure. Due to this characteristic, limited liability companies are rarely chosen except for family-run businesses or very small enterprises.
A limited company (Yuhan Hoesa) is similar to a joint-stock company (Jusik Hoesa) in that its members have voting rights proportional to their investment. Additionally, its management structure is either similar to or even simpler than that of a joint-stock company, which is why many foreign companies establishing branches in Korea choose the limited company structure. However, a limited company is inherently more closed off, as its members cannot freely transfer their shares, and external investment is difficult. In contrast, a joint-stock company allows shareholders to freely transfer their shares and facilitates external investment. Therefore, if there are plans to attract external investors or list the company on a stock exchange, choosing a joint-stock company is advisable. While it is possible to start as a limited company and later convert to a joint-stock company, the requirements and procedures for such a transition are complex, requiring careful planning in advance.
To establish a company in Korea for U.S.-Korea business, in addition to determining the company type as mentioned above, many other factors must be decided and prepared, such as the company name, business objectives, location of the headquarters, the amount of capital, etc. The most important thing is to continuously communicate with experts about your management, business, investment, and listing plans when making these decisions and preparations.
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Jin Hee Lee/K-Law Consulting Korean Attorney
[Reference link in original Korean]
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