Answers to the Questions Korean Companies Most Frequently Ask Before Establishing a US Corporation.

If you are considering establishing a US corporation, choosing a subsidiary structure is advantageous in order to completely shield the Korean headquarters from tax and litigation exposure while conducting business.

Before establishing a US corporation, when deciding which US state to choose, you should consider the following three aspects together.

1. Delaware: Thanks to its flexible corporate law framework, high predictability based on accumulated case law, swift registration processing, and the high level of expertise among US attorneys, it is chosen by more than 66% of Fortune 500 companies and more than 81% of publicly listed companies.
2. Other states (Nevada, Texas, Wyoming, etc.): Their popularity is rising on the strength of favorable state tax systems, strong privacy protection, and low regulatory burdens.
3. The state of actual business operations (the most decisive criterion): If you establish the corporation directly in the state where you actually conduct business, you can avoid the duplicate costs and administrative burdens of registering to do business in other states. For a single-region business that does not serve the entire United States and has no plans to attract outside investment, it is advisable to give priority to the location of business operations. (※ Because the choice of the state of incorporation does not directly affect federal tax or state income tax burdens, choosing the state of incorporation solely to reduce taxes is not justified.)

When advising on establishing a US corporation, we recommend a C-Corporation (hereinafter "C-Corp") as the default.

From the Korean parent company's standpoint, it is only natural not to want the headquarters directly exposed to US tax jurisdiction and tax filing obligations, so a C-Corp subsidiary, which is an opaque entity for tax purposes, should be chosen.

If an LLC is chosen as a pass-through entity, the LLC's US business is attributed directly to the Korean parent company, so the Korean headquarters itself files and pays US corporate income tax and even a 30% branch profits tax will have to be borne.

Except in special structures where large losses are expected during the first several years of business and loss aggregation for Korean tax purposes is needed, choosing a C-Corp is appropriate.

After establishing a US corporation, the biggest risk is that problems at the subsidiary drag the Korean headquarters in as a party to US litigation.

• Risk factors: Failure to observe corporate formalities (not holding board or shareholder meetings), excessive undercapitalization of the subsidiary, commingling of funds/employees between the parent and the subsidiary, and operating the subsidiary as a mere instrument of the parent company
• Response principles: You must strictly maintain separate accounting/bank accounts in the subsidiary's name, compose the board of directors distinctly from the parent company, and faithfully pay in initial capital commensurate with the scale of operations. (※ Involvement at the level where the parent company, in its capacity as an investor, supervises the subsidiary's finances and provides general management direction is recognized as a legitimate exercise of authority.)
• Tax risk: For transactions of goods, services, and funds between the parent and the subsidiary, you must maintain meticulous documentation so that transfer prices comply with the arm's length principle.