Company Formation Procedures In South Korea
Korean Commercial Code regulates kind of companies as follows:
- Stock company
- Partnership company
- Limited partnership company
- Limited liability company
- Limited company
The shareholders of Stock company are responsible for contribution of subscribed capital, have the right to appoint the company officers and to receive dividend, but not liable to pay the company’s debts to third parties
Accordingly foreign investors also prefer the sock company as their ideal type of Korean subsidiaries, and we are presenting company procedures based on Stock company hereunder.
- General understanding of Articles of Incorporation and company formation procedures
- General concept
The Articles of incorporation (AOI) in Korea is combination of Memorandum of Association and Articles of Association prevailing in the western countries.
The Stock company is required to have its own Articles of Incorporation (AOI) in compliance with the provisions of Korea Commercial Code and the company’s ow management policies.
(2) How to prepare AOI?
- We, CPA firm, will draft model Articles of incorporation (AOI) of the foreign subsidiary in English based on the provisions of Korean Commercial Code and business purposes and other information of the subsidiary, and send it to the foreign investor for supplement and completion of AOI based on management policy of the investor.(On some occasions supplement process may take time)
- AOI comprises (1) compulsory clauses which should be adopted by the company without change and (2) Optional clause that the company can add, omit, or supplement the original based on its management policy.
- We shall hand over the model draft of AOI to the foreign investor(s) for their review, supplement, and completion of AOI. The investors shall fill out the blanks on the draft, adding to, or amending of, the draft, to meet the concrete business purposes, management idea or philosophy of the investors and return it to us, CPA.
- Eventually Articles of Incorporation shall be completed through join review between the investors and CPA firm in compliance with the provision of Korean Commercial Code, Foreign Investment Promotion Act, and foreign investor’s management policies or ideas.
- After completion of Articles of incorporation, it shall be approved by the promoters’ meeting of the company to be incorporated. After the approval, it shall be notarized by a notary public in Korea by us, CPA firm, as a capacity of Power of Attorney and file it with the court upon registration of the incorporation of the company and send one copy to the foreign investor
(3) Actual practice of preparation of AOI and company formation process.
AOI comprises major information of the company such as company name, business location, business purpose, shares and capital, shareholders’ meeting, board of directors’ meeting, accounting, etc.
The implementation of these respective components is the process of forming a company. The details are as follows :
- Share Capital
1) Minimum amount of paid in capital of respective foreign investor is 100,000,000won (So, in case of two foreign investors, paid-in capital is 200,000,000won).
2) The paid-in capital shall be induced (contributed) in foreign currency equivalent to won currency paid-in capital through a special bank account given by the bank after filing Report on Foreign Investment to the bank.
3) After inducement of the capital the Bank issues Certificate of contributed capital as evidence for court registration
4) Authorized capital is four times of paid-in capital. Within the amount of authorized capital, the capital (share) increase is allowed by resolution of BOD Meetings (not by Shareholder’s meetings).
- Nomination of Officers:
1) Number of directors
- In usual cases three or more than three directors shall be appointed by the inaugural general meeting of shareholders, based on the provision of the articles of incorporation of the Company and Commercial Code
- But in case paid-in capital is less than one billion (10,000,000,000) won, one or two directors are allowed
2) In case of one director, there is no Director’s’ meeting. So, some of matters (agenda) shall be transferred to shareholder’s meeting
3) Term of office: Three years or less than three
B-2. Statutory Auditor
1) Number of auditors; in usual, one.
- Function: Conducting of financial and operational audit of the company and reporting audit opinion to the shareholders’ meeting, this is legal formality. But in Practice the auditor is doing nothing.
But in case the paid-in capital is less than one billion won the company may not have statutory auditor.
- Term of office: 3 years
B-3. Election of Representative Director
Representative Director shall be elected by the Meeting of Board of Directors of the subsidiary (in fact depending on the will of the foreign investor) among the appointed directors.
B-4. Nationality of officers Either local persons or foreigners residing in Korea or in the overseas can be appointed as the company officers
B-5. Inaugural shareholders’ meeting
After preparation or decision of the above respective items under Paragraph (2) and (3) we shall put them into statutory form as follows:
1) Inaugural shareholders’ meeting shall be held by document via Power of Attorney for the reporting on lawful contribution of paid-in capital and election of directors and auditor.
2) Board of directors’ meeting
This meeting shall be held to elect representative director of the subsidiary among the appointed directors
3) The minutes of Shareholders’ meeting and BOD meeting shall be prepared and signed by the appointed directors and representative director and notarized by a notary public.
4) Court registration of the company incorporation
- Major information of the incorporated company such as company name, business location, business purposes, names of officers, and paid-in capital, etc. shall be registered with the court based on the above notarized legal documents.
- Upon review of incorporation legal documents, the court registers the incorporation of the subsidiary with court registry and issues “Corporate Registration Certificate” and corporate seal certificate as evidence of the incorporation.
B-6. Foreign invested Enterprise Certificate
This certificate will be issued by our application for the issuance to the foreign exchange bank. The certificate states name of foreign investor. Paid-in capital, investment ratio of foreigners, Business purpose etc. This certificate is functioning as Share certificate issued by the Korean Government and this certificate guarantees payment of dividend and repatriation of contributed capital.
- Application for tax license
- Remaining Legal requirements succeeding incorporation of the company
Procedures Refer to Topic 1 Par. 2
- Opening bank account
Procedures Refer to Topic 1 Par.3
- Transfer of money
The contributed capital fund shall be transferred to operating bank account from the capital contributed bank account for using in business operation.
These are the process for set up of Korean subsidiary of foreign investors for running business in Korea.
From now on there is no institutional barriers involving running business operation.
Have a question? Contact Kook Hee Lee, Korea.
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