A. BUSINESS MODELS:-
Commercial Codes in Republic of Korea offer Koreans and foreign nationals with a variety of recognized options for establishing a business. These include a variety of company, partnership, branch and liaisons office structures. Investors can also form agent or technical assistant agreements. Of particular interest to foreign investors are the joint stock company, the branch office and the liaisons office. Based on the Korean Commercial Code and other related regulations, the following business enterprises are permitted:-
- Corporation (Chusik Hoesa)– A joint stock company, which is very similar to US Style corporation. Chushik Hoesa is the only corporate entity that is allowed, at the present, to publicly issue shares.
- Company (Yuhan Hoesa)- A limited Liability Company, which is very similar to GmbH in Germany of SARL in France.
- Unlimited Partnership (Hapmyong Hoesa)- All partners are liable for the obligation of the partnership.
- Limited Partnership (Hapja Hoesa)- Two types of partners are designated: a general partner and a limited partner.
The types of business presence generally employed by foreign investors in Korea are: (i) liaison office; (ii) branch office; and (iii) a company incorporated in Korea (a subsidiary or a joint venture company with a Korean counterparty).
- Liaison Office-A liaison office generally refers to an office not engaging in profit-generating activities and, thus, not subject to Korean tax. Since a liaison office is considered only in the preliminary phase of investment, a foreign investor generally establishes a branch or a subsidiary as its Korean presence. Stepsfor incorporation include- Bank approval (on an application along with POA to appoint a trustee for submission, appointment letter of Korea Branch Representative and Certificate of Registration); Tax Office Registration and Opening a corporate bank account.
- Branch Office- Establishment of a branch office is governed by the Foreign Exchange Transaction Act of Korea and does not require incorporation in Korea. A subsidiary, however, is established as a Korean corporate entity pursuant to the Korean Commercial Code (“KCC”) after filing a foreign investment report under the Foreign Investment Promotion Act of Korea (“FIPA”). Under the FIPA, in order to be qualified as a foreign investor, the investor is required to invest a minimum of KRW 50 million (approximately US$51,000) and acquire 10% or more of the total issued and outstanding shares of the Korean company. The FIPA provides various benefits and tax incentives available to foreign direct investments. Stepsfor incorporation include- Bank approval (on an application along with POA to appoint a trustee for submission, appointment letter of Korea Branch Representative and Certificate of Registration); Court Registration of Branch; Tax Office Registration and Opening a corporate bank account.
- Company incorporated- Under the KCC, a foreign company can establish its Korean subsidiary in the form of either a joint stock company (Chusik Hoesa) or a limited liability company (Yuhan Hoesa). Incorporation procedure involves-
- Getting approval from Ministry of Finance about foreign direct investment;
- Registering with the Commercial Registration Office of court-Promoters are recruited, inaugural meeting of promoters is held and the minutes are taken, article of incorporation is made and certified by a public notary, Matters related to issuing stocks are decided, Stocks are underwritten by the promoters. (Incorporation through promotion)
Stocks are underwritten by the promoters, stockholders are subscribed and stocks are distributed, Actual investment, Inspection of the incorporation process by the members of the board of directors and auditor is made, The board of directors meets, etc.
- District tax office registration;
- Opening bank account; and
- Registering with the Ministry of Finance and getting FDI certificate.
B. ENTREPRENEURSHIP IN KOREA–
The Republic of Korea is one of the greatest economic development success stories in history- going from one of poorest countries in the world and a major aid recipient to a high-income country and a major aid donor in just a single generation.