The types of business enterprise provided for by the Commercial Code – unlimited partnership, limited partnership, joint stock company, limited partnership, limited liability company – are all available as vehicles for foreign investment. The types are classified according to: (1) whether members’ liability with respect to the entity’s liability is limited or unlimited; and (2) whether such liability falls directly upon the members’ own assets or only indirectly upon the company’s property. A joint stock company (“chusik hoesa”) is the most commonly selected form of corporate vehicle, as it offers members limited liability and shares are freely transferable.
Shareholders of the company holding a given capital divided into shares are only liable to contribute up to an amount equal to their share subscription and do not bear any liability with respect to their company’s liability. The joint stock company system is appropriate for a large business requiring large amounts of fixed capital and the continued procurement of funds. A joint stock company requires at least one promoter and becomes effectively incorporated after preparation of the articles of incorporation, election of directors and auditors, determination of shareholders, fulfilment of contribution and, lastly, completion of registration of incorporated status.
As in the case of a joint stock company, the liability of all members is limited to the amount of their contribution to the company. The individual character of each member is taken more into account, transfer of equity is limited, and the company is not open to the public (unlike a joint stock company). Therefore, this type of company is appropriate for the operation of a small or medium-sized business owned by a small number of persons. Promoters are not separately required, but all members prepare the articles of incorporation and act as promoters at the time of incorporation. There is no system for scrutiny of the incorporation process, at least one member of the company prepares the articles of incorporation, and all members put their names and affix their seals thereto. Directors and auditors are elected, capital contribution is made, and the incorporation of the company is effected upon registration of the incorporation.
The business consists of members bearing direct, joint and unlimited liability with respect to the business’s creditors. In principle, all members bear rights and obligations with respect to implementation of the partnership affairs and the representation of the partnership. This type of business is appropriate for an enterprise jointly owned by a small number of persons whose personal relationship is very close. Each member bears unlimited liability and thus need not pay in capital prior to formation of the partnership. Contribution of credit or labour is possible, and there is no inspection procedure by a court. Also, all the members execute partnership affairs and thus need not form an executive organ prior to formation of the partnership. At least two members jointly prepare the establishment document, all members put their names and affix their seals or signature, and the partnership is formed upon registration.
This type of business entity consists of both members bearing direct and unlimited liability and members bearing limited liability. Members bearing limited liability participate in the business only through their capital contribution and have no right to undertake partnership affairs or represent the partnership. This type of business is similar to an unlimited partnership but with a capital contribution required. A limited partnership is formed when at least one member bearing unlimited liability and at least one member bearing limited liability prepare the establishment document and registration is effectuated.
A limited liability company (LLC) was introduced in the revised commercial law in 2012 as a company form. The internal relationships of the limited liability company are regulated in the same way as Unlimited Partnerships (“Hapmyung Hoesa”) unless there are provisions in commercial law or the articles of incorporation. LLCs have quicker, more flexible and resilient governance than rigid governance of the Joint Stock Company (“Chusik Hoesa”). Investors can participate in the management of a subsidiary directly. Because each employee is responsible for only the amount of the contribution limit, it is suitable for youth ventures with high technology but finding difficulties in the initial commercialization.