COMPANY TYPE IN KOREA: “The Limited Company ( Yuhan Hoesa )”
( by Andrew Baek , July 25, 2024)
Continuing from the previous article on the types of companies available in Korea, this article will now examine the “Yuhan Hoesa”, which translates to Limited Company.
Prior to 2011, the Limited Company corporate structure was under many legal restrictions, such as the maximum number of members allowed, restrictions on the transfer of equity interests, and the minimum capital required for their establishment. Hence the term “Limited” came more naturally. However, most of the restrictions have now been abolished to encourage the establishment and promote the growth of Limited Companies.
In comparison with the Stock Company, the main difference would be that, on the upside, the Limited Company can maintain a higher level of secrecy, while on the downside, it is not easy for such a company to raise capital from external sources.
Unlike the Stock Company, the Limited Company is not required to submit annual business reports nor make public disclosures, unless under exceptional circumstances such as being part of a Business Group Subject to Disclosure. However, if it reaches a certain size, it will be subject to external audit, and the audit reports will be sent to the Securities and Futures Commission, and the Korean Institute of Certified Public Accountants.
Also, unlike the Stock Company, the Limited Company cannot issue any equity-based securities (e.g., shares) nor any debentures. Capital increases are typically made by admitting a new investor as a member, who receives investment units as equity interest.
A Limited Company can choose to convert to a Stock Company. Previously, such conversion always required unanimous consent from all members and a resolution at their general meeting. However, the Commercial Act has been amended to allow this conversion with a special resolution at the general meeting (a majority of all members and 3/4 or more of their voting rights) if the Articles of Incorporation provides so.
It may be due to these characteristics, especially the higher level of secrecy, that many large multinational companies establishing a local company in Korea choose this corporate structure. Establishment and business operations may also be more convenient than a Stock Company, considering the comparatively simple document preparation at incorporation, the ease of internal decision-making, and the absence of a limitation on the term of office for a director, whereas in a Stock Company, a director would need to extend their term of office every three years.
A Limited Company must appoint at least one director to represent the company and execute its corporate affairs. Where there are multiple directors, decisions are made by a majority vote of the directors. Notwithstanding, major business decisions, such as transfer or acquisition of business, and execution or termination of material contracts, require resolution at the general meeting of members.
Interestingly, in a Limited Company, the Articles of Incorporation can be written to structure the members’ voting rights at the general meeting to concentrate power within a few hands, although the standard allocation is one vote per unit of investment. This facilitates easier management and control, particularly suitable for companies held closely by a small group of individuals.
In conclusion, it is safe to say that the Limited Company corporate structure of Korea, or the Yuhan Hoesa, is well-suited for well-resourced, closely held entities or family-run businesses, offering a balance of liability protection and operational flexibility, as well as a closed nature. Additionally, this type of company too can be registered as a Foreign-Invested Enterprise under the the Foreign Investment Promotion Act.
If you are considering establishing a local company in Korea and would like to learn further details and characteristics of diverse corporate structures in Korea, feel free to contact us via email at inpyeong@inpyeonglaw.com.
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