Limited Liability Company(유한회사)
Are you still stuck on the idea of incorporating your company as a “주식회사 (jushik hoesa)?”
In this type of company, you need to extend not only the directorship every 3 years, but the term of the auditor, too, if you have one. Why go through all the hassle? Stick to a “유한회사 (yuhan hoesa);” a limited liability company.” A yuhan hoesa needs only a director (which can be yourself) without the need for a registered auditor. Make your company simple, flexible and lighter so you can focus on your core competencies from the beginning.
From a legal point of view, if it’s just a one-man company, you must shoulder the entire liability for corporate taxes (for example, if you have more than 50% of the company shares). To avoid this kind of secondary liability for national taxes, some company owners spread the shares amongst his or her friends to make their personal ownership less than 50%.
But this secondary liability is the same in a limited company (yuhan hoesa). A bigger company like Channel, Hermes, Apple or Microsoft loves this type of structure, since their results or financial statements do not need be published every year – after it’s been audited by a CPA in Korea. This type of company is also not effected by the conditions of FDI nor does it affect anyone's visa status as one might expect.
Most foreign investors automatically choose their company type as a 주식회사 (jushik hoesa), but as you may have learned through my articles, a 유한회사 (yuhan hoesa) is more flexible, simple and competitive – even for corporate secretarial issues. Furthermore, if you don’t need a D-8 visa or an FDI certificate, you can still establish a company at your residential address with one million won of paid-in capital, without the Certificate of Deposit needed for a jushik hoesa, so long as your business scope is not a restricted one, like a restaurant, which needs its own premises.
I recently had a bad experience with a Singaporean investor who wanted to enter the restaurant business in Korea but did not yet having a lease contract for a space. So, at her request, I simply registered her business at her rented apartment and entered her business scope in the category of services & consulting (which we could change once she got the funding required to get a space for her eatery). Imagine my surprise when I got a call from a Korean ajumma yelling at me for registering the Singaporean's apartment as her business address! It turns out the ajumma landlord didn't want her rental income exposed to the tax office. While there was no restriction in her lease contract for registering a business address, things can get messy when dealing with greedy, tax-dodging landlords. The investor simply couldn't understand why her landlord was so angry!
The moral of this story? We need to concentrate on what you need and consider all factors before taking any steps to start your business. Additionally, it is necessary to develop alternate plans and be responsive to new developments to avoid possible mistakes and cultural misunderstandings in this rapidly changing, developing and improving country. As always, I recommend that my expat clients and other foreign investors focus on their strengths and leave the accounting, taxes, HR, legal, and the Korean way of doing business to our team at JZ Associates, jz@taxjz.com, will you!
