Establishment of a Foreign-Invested Company

The section below outlines the procedure for forming a foreign-invested company.

Foreign investors and foreign companies entering the Korean market may find it useful to lay the groundwork by establishing a local subsidiary in Korea.

As the global market expands, more foreign companies continue to enter Korea, and demand among foreigners who want to set up a company here is rising steadily.

The discussion that follows covers the procedure, the available legal methods, and the points to keep in mind when establishing a domestic local subsidiary for a foreign-invested company.

For a foreigner to invest in Korea through a local subsidiary, the following requirements generally apply.

Investment Amount Criteria

• To qualify as a foreign-invested company under the Foreign Investment Promotion Act and the Commercial Act, capital of at least 100 million won is required
• For an investment in an existing domestic company, the investment must acquire 10% or more of the total voting shares
• If the acquisition is below 100 million won or under 10%, the Foreign Exchange Transactions Act applies instead

Method of Contribution

• Contributions may take the form of a cash contribution or an in-kind contribution
• The foreign currency must be documented, whether it is brought in by overseas remittance or through customs entry

Form of the Company

• The company forms permitted under the Korean Commercial Act include the stock company, the limited company, the general partnership company, the limited partnership company, and the limited liability company

The procedure for establishing a local subsidiary can be summarized as follows.

1) Foreign Investment Notification
The foreign investor or its agent files the foreign investment notification with KOTRA, a domestic foreign exchange bank, or a trade office.

• Foreign investment notification for share acquisitions and similar transactions
• Certificate of nationality for the foreign individual investor (a copy of the passport)
• Corporate certificate (a certificate issued by a foreign administrative agency)

2) Remittance and Deposit of Funds
The foreign investor must remit the funds to the foreign currency account at the designated foreign exchange bank, or bring the funds in personally and obtain a foreign exchange declaration certificate through a customs declaration.

The funds must then be deposited into a share-payment custody account, and a deposit confirmation must be issued.

3) Company Incorporation Registration
A stock company may be formed either by incorporation through promotion or by incorporation through subscription, and there must be at least one promoter.

• Application for stock company incorporation registration
• Articles of incorporation (notarization required when capital is 1 billion won or more)
• Share subscription form
• Minutes of the board of directors
• Certificate of custody of share payment

Documents to Be Prepared by the Foreign Investor

Documents issued by a foreign administrative agency require an apostille or consular confirmation.

• Written acceptance of office
• Passport or other issued identification document
• Power of attorney for the registration application
• Seal registration report
• Corporate certificate

• Non-Recognition of Legal Status Due to Insufficient Investment
  If the investment is below 100 million won, or if less than 10% of the voting shares is held, the entity may not qualify as a foreign-invested company. In that situation, the Foreign Exchange Transactions Act applies, and the entity may not receive protection under the Foreign Investment Promotion Act.

• Scope of Protection Under Foreign Investment Law

The law guarantees overseas remittance of the proceeds from a foreign investor's acquired shares, the proceeds from the sale of shares and similar assets, and the principal, interest, and fees under a loan agreement

• Notarization of the Articles of Incorporation and Minutes
  When the capital is 1 billion won or more, certain documents require notarization.

Because notarization, an apostille, or consular confirmation may be required depending on the country, the translation and verification steps can become complicated.

• Difficulties With Proof-of-Address Documents
  Some countries make it difficult or impossible to issue a certificate of address, which can create the inconvenience of preparing alternative documents to prove the representative's address.

The representative who establishes a foreign-invested corporation may apply for domestic residence status (D-8), which supports stable management of the company.

Because the documents to be submitted vary with the nationality of the founder and the method of document authentication, it can help to consult with the Korea Trade-Investment Promotion Agency (KOTRA) or a foreign exchange bank before establishment.

The registration and recording processes involved in establishing a foreign-invested corporation are complex, and the document requirements are extensive. Setting up such a corporation involves more than opening a place of business in Korea. It also touches on closely interconnected matters, such as foreign exchange remittance, visa issuance, tax filing, and recovery of the invested funds.

To help the procedures proceed lawfully, with an understanding of the Foreign Investment Promotion Act and the Commercial Act, careful fulfillment of the investment and procedural requirements, and support from legal professionals, specialists including attorneys, certified public accountants affiliated with the firm, tax accountants, and judicial scriveners can assist throughout the process.