Establishing a Family Corporation in Korea: Key Considerations

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When it comes to setting up a family corporation in Korea, there are several important factors that need to be taken into account. From capital requirements to the type of corporate entity, these considerations are crucial for ensuring that your business starts on a solid foundation. Below, we'll explore the various conditions you need to review when establishing a corporation in South Korea.

Capital Requirements

According to the Commercial Law, the minimum capital requirement for a corporation is theoretically as low as 100 KRW. This is because the minimum face value of an issued share is 100 KRW, and if only one share is issued, the capital would be 100 KRW.

However, while it's theoretically possible to start with such a low amount, in practice, tax authorities may reject business registration for an unrealistically low capital. Additionally, certain industries that require permits or licenses may have their specific minimum capital requirements.

Typically, businesses are established with a capital ranging from 10 million to 100 million KRW. For adult family members, it's possible to gift up to 50 million KRW every 10 years without incurring gift tax, and for spouses, up to 600 million KRW every 10 years. This can be a strategic way to register family members as shareholders without additional tax burdens at the initial stage of setting up the company.

Types of Corporate Entities

The choice of corporate entity is often between a joint-stock company (Jusik Hoesa) or a limited company (Yuhan Hoesa). There are also other forms such as limited liability companies (Yuhan Chaekim Hoesa), partnerships (Hapja Hoesa), and joint partnerships (Hapmyeong Hoesa), as well as specialized agricultural corporations.

Shareholders/Members

A joint-stock company requires at least one shareholder, while a limited company needs at least one member (similar to a shareholder in a joint-stock company).

Officers

In a joint-stock company, officers must renew their registration with the court every three years. However, in a limited company, there is no set term for officers, which means they can remain in position until death if not replaced. Both joint-stock and limited companies require at least one director. If a joint-stock company has a capital of over 1 billion KRW, it must also have at least one auditor and at least three directors.

Recommended Industries for Family Corporations

In Korea, inheritance tax rates can go up to 50% for amounts exceeding 3 billion KRW, making the inheritance of real estate particularly burdensome. Capital gains tax is also hefty.

Corporations are taxed on their income at corporate tax rates, which are more favorable compared to personal income tax rates. For net profits below 200 million KRW, the rate is 9.9% (including local taxes), and for profits exceeding that amount, the rates range from 20.9% to a maximum of 26.4%.

Therefore, small-scale food businesses and real estate rental services often opt for a limited company due to the simplicity and speed of decision-making processes.

In conclusion, setting up a family corporation in Korea involves careful planning and consideration of various legal and financial aspects. By understanding the capital requirements, choosing the right type of corporate entity, knowing about shareholder/member regulations, and selecting suitable industries, you can establish a robust foundation for your family business. It's always recommended to consult with legal and financial experts to navigate the complexities of corporate law and taxation in Korea effectively.