COMPANY TYPE IN KOREA: Recap of Company Types in Korea and Overview Over Investment Schemes Regulated Under the “Capital Markets Act”
by Andrew Baek(July 30, 2024)
To recap from an entrepreneur’s perspective, Stock Company, Limited Company, and Limited Liability Company are the three types of company in Korea that offer limited liability protection to all of their equity holders. Limited partnership companies can too offer limited liability protection, but only if the equity holder is a limited partner. A general partner of a limited partnership company, or a member of a partnership company, is a position that would place the entrepreneur to an extensive liability exposure.
Of course, liability exposure would not be the only subject of consideration. There are many other issues to consider, including ease of incorporation, representation and control, efficiency in decision making, distribution of profits, means available for raising capital or assigning equity interests, applicable requirements or restrictions when engaging in mergers or organizational changes, etc.
Moreover, the needs of an entrepreneur may change over the course of time and so would the type of company that would best meet the needs. Please consider the following when navigating organizational changes or mergers: regarding conversion of company type, a Partnership Company may only be converted into a Limited Partnership Company and vice versa; a Limited Company, as well as a Limited Liability Company, may only be converted into a Stock Company; a Stock Company, may be converted into either a Limited Company Or A Limited Liability Company. So, while the Stock Company has the most versatility in terms organizational changes, there is no conversion allowed between a Partnership Company, limited or not, and non-partnership types of company. On the other hand, merger is allowed between any of the different types of company; provided, however, that, if one of the merging companies is a Stock Company, Limited Company, or Limited Liability Company, then the surviving company or the newly incorporated company from the merger must be a Stock Company, Limited Company, or Limited Liability Company, respectively.
In addition to the five types of companies outlined under the Commercial Act, as discussed in previous articles, you may encounter terms such as Investment Limited Partnership Companies and Investment Limited Companies in Korea. These terms refer to collective investment schemes stipulated under the Act on Capital Markets and Financial Investment Services (the “Capital Markets Act”), which manage investable assets pooled from two or more investors, without instructions from the investors, and distribute the yields back to them.
If a collective investment scheme takes the form of a limited partnership company, it is called an “Investment Limited Partnership company.” Similarly, it may be referred to as an “Investment Limited Company” or an “Investment Limited Liability Company.” If the scheme takes the form of a Stock Company, it is called an “Investment Company.” Additionally, there are no collective investment schemes in the form of just a partnership.
The Capital Markets Act also classifies companies such as securities finance companies, credit rating companies, fund brokerage companies, and short-term finance companies. These classifications do not refer to company types. In fact, the first three are all Stock Companies, and the last one is a bank (or financial institution). These designations indicate that the companies have acquired the relevant permits or authorizations from competent government bodies or agencies, such as the Financial Supervisory Service, to engage in their respective businesses.
These designations may initially seem confusing and numerous. However, once familiar with them, it becomes easier to understand their corporate nature and, in certain cases, the business they engage in.
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 or by phone at +82.
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