Establishing a Business Entity in Korea

I. Overview
Foreign investors entering the Korean market have several options for establishing a local business entity under the Korean Commercial Code. Among such entity types, a chusikhoesa (similar to a corporation) and a yuhanhoesa (similar to a limited liability company) are by far the most common. Each structure offers distinct advantages depending on the investor’s long-term objectives, level of capital commitment, and governance preferences.

The popularity of the chusikhoesa arises from its suitability for companies anticipating significant growth, fundraising through the issuance of shares or bonds, or eventual listing on a securities exchange. By contrast, the yuhanhoesa has become increasingly favored in recent years among investors seeking streamlined governance, no public disclosure requirements (except for certain large companies), and greater flexibility in structuring member participation. Determining the appropriate choice requires careful consideration of business strategy, ownership structure, and regulatory compliance issues.

II. Key Differences: Structure, Governance, And Disclosure
Both chusikhoesa and yuhanhoesa are corporate entities with limited liability, meaning shareholders or members are only liable up to their contributions. They are subject to the same corporate tax system, which applies a progressive rate structure - tax rates increase in steps as income rises. Furthermore, the Korean corporate tax system includes a local income tax surcharge that increases the total tax burden on companies.

Where the two forms diverge is in terms of governance, disclosure, and potential for growth.

The chusikhoesa must have at least one director, although larger companies often have multiple directors. If the company’s capital exceeds KRW 1 billion, it must appoint a statutory auditor or establish an audit committee to oversee financial reporting. Publicly traded companies with significant assets have stricter rules for audit committees. The chusikhoesa is required to prepare and disclose financial information under formal regulatory standards.

This type of company can raise capital flexibly by issuing different classes of shares, including preference shares, as well as bonds and other debt securities. Its shares can be freely transferred and listed on a stock exchange, making it suitable for larger companies or those planning to go public.

On the other hand, the yuhanhoesa cannot issue publicly traded shares or bonds, and its membership is limited to 50 members. This means it cannot go public or have a broad investor base. However, it requires only one director and no statutory auditor. There are generally no public disclosure requirements, giving members more freedom in structuring voting rights and ownership. This simpler governance and greater privacy are attractive to small and medium-sized companies, family businesses, or subsidiaries.

In essence, companies targeting rapid growth, fundraising, or public listing usually choose the chusikhoesa, while those preferring simpler management, confidentiality, and flexibility often opt for the yuhanhoesa.

III. Formation Process: Steps And Legal Requirements
Despite their differences, the formation procedure for both the chusikhoesa and yuhanhoesa follows similar stages. Under the Foreign Investment Promotion Act in Korea, any foreign investor planning to invest more than KRW 100 million is required to file a foreign investment report with the competent government authority or a designated foreign exchange bank prior to incorporation or investment. Documentary requirements differ depending on whether the investor is an individual or an entity, but generally include a certificate of incorporation, certificate of good standing, and proof of nationality, all of which must be notarized and apostilled for use in Korea. If incorporation is being handled through a legal representative, a power of attorney is also required.

Following the investment report, the investor must remit the investment amount to a designated foreign exchange bank in Korea, which issues a certificate of payment. While the statutory minimum can be as low as KRW 100, an initial capital of at least KRW 1–10 million is generally advised for practical reasons—such as covering setup and operational costs—as well as for visa eligibility and industry-specific requirements.

An inaugural general meeting of shareholders (in the case of a chusikhoesa) or members (in the case of a yuhanhoesa) is then convened. At this meeting, directors are appointed, articles of incorporation are formally adopted, and a representative director may be elected.

Once duly formed, the company must register with (i) the corporate registry office; (ii) the designated foreign exchange bank as a foreign-invested company; and (iii) the competent tax office. The company must also register its official company seal, which functions similarly to a signature and is required for executing binding documents.

Under ordinary circumstances, the incorporation process takes approximately seven to ten business days once all necessary documentation has been prepared. Delays may arise, however, when notarization and apostille requirements are not satisfied or when local procedural customs are not observed.

IV. Strategic Considerations For Investors
The choice between the chusikhoesa and the yuhanhoesa ultimately depends on the strategic objectives of the investor. Large corporations with a view toward long-term growth, capital raising, and potential listing will find the chusikhoesa most suitable. On the other hand, investors seeking a more efficient and confidential vehicle, without the burden of public disclosures or multiple-director requirements, will find the yuhanhoesa particularly attractive.

This article is provided for general informational purposes only and does not constitute legal advice. Laws and regulations are subject to change and their application may vary depending on individual circumstances. You should consult with a qualified attorney about your particular situation before making any decisions or taking any action. 
 
Sojong Partners has extensive experience advising clients on the establishment and ongoing legal compliance of all types of entities in Korea. We have assisted numerous foreign corporations and individuals through every stage of the incorporation process, tailoring our services to address each client’s unique circumstances and legal requirements. For further information or to discuss your business plans in Korea, please contact us.