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Entity Set-up in Korea

Since the amendment of the commercial law in 2012, the articles of incorporation have become a lot easier for everyone in Korea. There used to be a lot of restrictions and relations to incorporate, but the process has been simplified and does not require payment capital, as it does in the United States. It is possible to have a one-person company for “company limited (株式會社)” as well as “limited companies (有限會社).”

Previously, for a company limited there was a minimum capital of W10 million, but that restriction no longer exists. In the case of a company limited, two people (for example one director without shares and one shareholder) are necessary. After the company has been set up, this shareholder will transfer all of his/her shares to the director. This is a roundabout way of forming a one-man company with W100,000 paid in capital. You can increase the amount paid in capital afterwards at your own discretion. Recently, I had the chance to incorporate a company limited and found that it was almost free to incorporate, just like in the United States. Individuals can incorporate with as little as W500 paid-in capital.

Due to the fact that these organizations need to have an officer who does not own shares, I found that many of them utilized someone in the position of an auditor. This isn’t ideal since the terms of service are different for directorship and for auditors: directors must be replaced every three years, but the auditor must be replaced at the end of the third fiscal year. It’s not easy to replace both at the same time. Therefore, I recommend that these organizations are established with one director without shares and an one promoter with shares. After the company has been set up, the promoter transfers all of his/her shares to the director (the real owner and sole member).

There will be a tax-for-share transaction, which is a 0.5% tax on the face value (if there was a transaction that used the face value). For example, W100 million capital would be taxed W500,000. If the transaction was done at less or more than face value, there will be a gain tax from the share transfer. For this reason, it is important to ensure that the share transaction is not done according to the face value.

For the sake of simplicity, I usually recommend expats choose the limited company (有限會社) option. In this model, an individual can become the sole member, director and promoter simultaneously – truly a one-person company from the beginning. This company would have no responsibility with regard to public notices of its financial statements once per year, so many big companies incorporate this way including “limited liability companies (有限責任會社).”

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