Precautions for establishing a foreign-invested corporation in Korea

 < Precautions for establishing a foreign-invested corporation in Korea >

We would like to provide the following guidance regarding corporate establishment in Korea.

As you can see on our website(https://inpyeonglaw.com), our firm has extensive experience handling foreign exchange transaction reports, incorporation registrations, and other related tasks for the establishment of a foreign-invested enterprise. We are currently handling a few ongoing cases as well.

1. Requirements and procedures for establishing a foreign-invested corporation

A. Definition of a foreign-invested corporation and types of establishment

A foreign-invested corporation is an enterprise invested by a foreign investor in accordance with the Foreign Investment Promotion Act. According to Article 2 (1) (6) of the Foreign Investment Promotion Act, “foreign-invested enterprise” means an enterprise invested by a foreign investor, and “foreign investor” means a foreigner who owns shares or makes contributions in accordance with the Foreign Investment Promotion Act.

Foreign-invested corporations can be established in the following ways

1. New corporation establishment: A foreigner directly establishes a corporation in Korea.
2. Investment in an existing corporation: A foreigner invests in an already established Korean corporation.
3. Joint venture: Foreigners and Koreans jointly invest to establish a corporation.

B. Foreign Investment Reporting and Registration Procedures

If a foreigner intends to make a foreign investment, he or she must notify the Minister of Trade, Industry and Energy in advance as prescribed by the Ministry of Trade, Industry and Energy (Article 5, paragraph 1 of the Foreign Investment Promotion Act). After notification, the following procedures must be followed

• Completion of payment of the investment object
• Registration of incorporation
• Registration of a foreign-invested enterprise: If you have completed the payment of the investment object, acquired shares, etc. or made a contribution, you must register as a foreign-invested enterprise (Article 21(1) of the Foreign Investment Promotion Act).
• Business Registration

2. Main precautions when establishing a foreign-invested corporation

A. Identification of Restricted Industries

Foreign investment may be restricted in some industries, so it is important to check whether the industry in which you intend to invest is restricted:

• 60 industries are excluded from foreign investment, including public administration, foreign affairs, national defense, etc.
• 31 industries are open to foreign investment, but there are restrictions on investment ratios, etc.
• Three sectors remain unopened: nuclear power generation, terrestrial broadcasting, and radio broadcasting.
• The airline, banking, and telecommunications industries have restrictions on the proportion of foreign investment.

B. Capital Requirements for the Establishment of a Foreign Investment Corporation

In theory, it is possible to establish a corporation with the capital 100,000 won; but in practice, it is very difficult to open a corporate bank account and register a business with such a small capital. Even for Koreans living in Korea, the minimum capital is usually set at 1,000,000 won or more, and even then, banks refuse to open accounts for fear of illegal use rather than legitimate business activities.

Therefore, it is not recommended to establish a corporation with a low capital. For safe incorporation and business operations, it is recommended that foreigners increase their capital to at least KRW 10,000,000, regardless of their status of residence in Korea. It is also recommended to avoid using a shared office as a business address.

For more information on incorporation, please use our consultation service. Our corporate and investment lawyers with over 17 years of experience provide direct legal advice to businesses and individuals.

Regarding contract review after incorporation, we can provide ongoing advisory services on a project basis or on a regular retainer. Please consider this in your decision-making process. We will do our best to provide you with diligent and professional advice based on our experience and expertise.

Thank you.

If you have any questions, please do not hesitate to contact us.

Yours sincerely.