What is the main source of law authorising this entity form?
The Korean Commercial Code (“상법”; “Sangbub”), Part III (hereafter, “KCC”)
Give a brief summary of the entity form:
Does the entity possess separate legal personality?
Chusik Hoesa has legal personality separate from its incorporators and/or shareholders
(Maximum) period of existence
There is no maximum period of existence and Chusik Hoesa may exist for an indefinite period of time.
Governing document(s)
Chusik Hoesa is governed by its Articles of Incorporation (“정관”; “Jungkwan”), adopted by the resolution of incorporators’/shareholders’ meeting(“주주총회”; “Chu-ju-chong-hoe”).
Liability of incorporators / shareholders
Incorporators and/or shareholders are not personally liable for the debt of the company, save to the extent to which their shares are not fully paid-up. Such limited liability is subject to limited instances of “piercing the corporate veil”.
(Governing) bodies
As a general proposition, matters relating to the management of company are decided by the Board of Directors (“이사회”; “Esahoe”), although certain important matters shall be authorised/approved by the shareholders’ meeting as stipulated in the KCC and/or the Articles of Incorporation.
Can this type of entity be involved in international transactions and restructurings (e.g. cross border mergers, asset acquisitions, equity acquisitions, etc.)?
As a general proposition, Chusik Hoesa may enter into international restructuring by means of asset acquisitions or equity acquisitions and enjoy the full effect thereof by the operation of law and/or under individual agreement governing such international restructuring. Notwithstanding, there are certain limits on shareholding ratio or share acquisition under the relevant laws; for instance, foreign ownership of company engaging in telecommunication, broadcasting, newspaper publishing, banking, marine, aviation, agriculture and natural resources businesses are restricted to a percentage ceiling or subject to regulatory approval.
Separately, a merger (i.e. joining together of two or more companies into one entity without ceasing to exist) between legal entities established in Korea and other jurisdiction is not allowed.
Can this type of entity be publicly listed or held?
Yes. In fact, Chusik Hoesa is the only corporate form that can be listed on the public exchange.
Can this type of entity be used for a non-profit or charitable organization?
No, given its nature as a commercial entity, with the ability to make profit distributions, and because it is subject to corporate income tax.
Give a brief summary of the process of incorporation, formation, or organization, including:
Main documents required
- The Articles of Incorporation;
- The minutes of incorporators’ meeting;
- The minutes of the meeting of the Board of Directors for appointing the representative director;
- The share subscription form and the certificate of share subscription;
- A certificate of payment for the share executed by a designated bank; and
- Letter of acceptance for each director/statutory auditor and each photocopy of ID for them.
Involvement of notary, company register, governmental authorities
Any documents executed or signed by foreign nationals should be notarized and apostilled (or consularized by Korean embassy if apostille service is unavailable).
For the purpose of registration, items (i)~(vi) must either be prepared, or translated into the Korean language; additionally, items through (i)~(iii) must be notarized in Korea.
Chusik Hoesa must be registered with the pertinent Court Registry Office to be legally established. Chusik Hoesa must also be registered with the pertinent Tax Office for tax purposes.
Timing (estimate)
Once the documents are fully prepared, the procedure usually takes 3 to 5 business days.
Main costs, including registration and similar fees (excluding legal fees)
Excluding legal and notaries’ fees, main cost is the registration tax, the amount of which is 1.44% of paid-in capital in case Chusik Hoesa which is incorporated in Seoul or nearby area, or 0.48% in other area.
Is a description of the anticipated business or purpose of the entity required for incorporation, formation or organization?
The business purposes must be stated in the Articles of Incorporation and filed with the relevant Court Registry Office and Tax Office.
Minimum number of incorporators / shareholders and residency requirements
There should be at least one (1) incorporator/shareholder, without any residency requirements.
Minimum number of directors (or other applicable officers) and residency requirements
As a general rule, Chusik Hoesa must have at least three (3) directors and one (1) or more statutory (internal) auditors. However, a Chusik Hoesa with less than KRW 1 billion (approximately USD 1,000,000) in paid-in capital may have only one or two directors and no statutory auditor.
As a general rule there is no residency requirement for directors and statutory auditors, but for companies in certain industries (e.g., aviation industry), registered directors may only be of Korean nationals.
Minimum share capital, or equivalent, and payment requirements (including opening a bank account)
There is no minimum required paid-in capital. However, the amount of the capital determined at the incorporators’ meeting must be fully paid up for the incorporation registration.
Is the physical presence of incorporators / directors required in the jurisdiction for incorporation, formation or organization?
The physical presence of incorporators/shareholders/directors is not required and the execution of the notarial document of incorporation may be carried out by virtue of a power of attorney.
Is a tax identification number, or equivalent, required? If so, how is it obtained?
After the corporate establishment registration is completed, upon application, the pertinent Tax Office provides a business registration number as a tax identification number.
What is the title of the applicable company registry?
The Court Registry Office (“법원 등기소”; “Bupwon-deung-gi-so”)
What types of information must be filed at the (company) register, and which of them will it be publicly available, e.g.:
The information enumerated below must be filed with the Court Registry Office, and will be made publicly available:
- Purpose and the activities of the company;
- Trade name and the address of the principal office;
- Total number of shares to be issued, class of shares (with the number and details of respective class of shares);
- The method of giving a public notice by the company;
- Provisions that (i) subjects share transfers to an approval of the Board of Directors or (ii) grant stock options (if applicable);
- The address of branch office (if exists);
- Share capital (issued and paid up) and the par value;
- Date of incorporation;
- Name, birth, nationality and address details of the representative director, directors and statutory auditors;
- Period or conditions, provided if a Chusik Hoesa is to exist only for a certain period of time, or liquidate under certain conditions;
- Provisions as to retirement of shares with profits to be distributed to shareholders (if applicable);
- Provisions that two or more representative directors shall jointly represent the company, if so determined;
- Information regarding good standing, insolvency, liquidation;
- Information regarding stock option;
- Information regarding convertible shares (e.g., the terms and conditions of issuance, converting period, etc.,); and
- Information regarding restructuring (merger, split, conversion, etc.)
What is the title of the executive body and its members? What are their main duties, tasks and responsibilities?
The Board of Directors and the representative director appointed among directors.
The Board of Directors has the authority to decide material matters pertaining to the company management and operation. The representative director has the authority to implement the Board of Director’s decisions and to do all day-to-day actions relating to the company’s ordinary course of business.
Each director owes the fiduciary duty to the company.
How are the members of the executive body appointed, dismissed and replaced?
Appointment: Directors are appointed at the meeting of shareholders. The representative director, nominated and appointed among such directors, is appointed by the resolution of the Board of Directors unless the Articles of Incorporation stipulates such appointment be resolved by the shareholders’ meeting.
Dismissal and Replacement: Directors may be dismissed and/or replaced with a special shareholder resolution at any time for any reason.
Note: any changes to the Board of Directors must be registered with the Court Registry Office and will be made publicly available on the company registry.
Is it possible to appoint corporate directors or must all directors be natural persons?
The prevailing opinion and the court registration practice is that a corporate director may not be appointed except as permitted by a specific law (e.g., a Special Purpose Corporation incorporated in a Chusik Hoesa form pursuant to the Capital Market and Financial Investment Business Act may appoint corporate directors).
Is there a requirement to have non-executive directors? How are they appointed, dismissed and replaced? Do non-executive directors serve on a separate body (two-tier structure) or can a one-tier board (with executive and non-executives) be appointed, or is some alternate structure used?
A non-listed company may choose to have non-executive directors who supervise the executive directors.
A listed company must have non-executive directors, whose number depends on the amount of the company’s asset.
Regardless, the executive directors and the non-executive directors would jointly form single (unitary or one-tier) board.
The Board of Directors may establish committees within the Board as prescribed by the Articles of Incorporation. However, a listed company with total assets exceeding KRW 2 trillion (approximately USD 2 billion) must establish an audit committee, instead of a statutory auditor, and a committee for nomination of non-executive directors, which will be made up with the majority of non-executive directors.
What is the title of the body of owners / shareholders / members, and what are the main tasks / responsibilities / powers of that body?
The shareholders’ meeting has the rights provided to them by law and the Articles of Incorporation that are not imposed upon the directors or other bodies within the company. The main rights include:
- Election, remuneration and removal of directors and statutory auditors;
- Amending the Articles of Incorporation;
- Approval of financial statements and dividends;
- Approval of the transfer of all or a substantial part of company’s business and purchase of all the business of another company;
- Merger, spin-off, comprehensive exchanges and transfers of shares;
- Capital reductions; and
- Granting stock options.
Shareholders are not liable for the obligations of the company. The shareholders may be held liable, however, if (a) “piercing the corporate veil” is recognized, or, (b) if the shareholders are recognized as ‘business instructing persons’ (similar to a de facto director or a shadow director).
What are the majority and quorum requirements for decisions by the shareholders? Can they be varied or changed?
Unless otherwise provided by law or in the Articles of Incorporation, a shareholders’ resolution may be (i) an ordinary resolution requiring a majority of voting shares represented at the meeting and 1/4 of all outstanding voting shares, or, (ii) a special resolution requiring 2/3 of voting shares represented at the meeting and 1/3 of all outstanding voting shares. Other than as to matters requiring a special resolution (e.g., to amend the Articles of Incorporation, etc.) or unanimous consent of shareholders (e.g., for discharging director of any liability for breach of duties) as specified by law or in the Articles of Incorporation, an ordinary resolution shall suffice.
Any special governance regimes (e.g. depending on size, being listed at a stock exchange, or other criteria)?
A listed company with total assets exceeding KRW 2 trillion (approximately USD 2 billion) must establish an audit committee and a committee for nomination of non-executive directors within the Board of Directors.
What are the periodic accounting obligations incumbent upon the entity? To whom must those accounts be submitted?
A business report, audit report and financial statements must be prepared each financial year and approved at the shareholders’ meeting.
Is the entity permitted to determine its own financial year?
Yes.
Is the entity subject to any statutory (external) auditor obligations?
A listed Chusik Hoesa and/or a Chusik Hoesa exceeding certain scale must undergo an accounting audit by an independent external auditor, the report of which shall be made public. A Chusik Hoesa exceeding certain scale means any of the following company:
- A company whose total amount of assets as of the end of the immediately preceding business year is at least 50 billion won;
- A company whose sales in the immediately preceding business year are at least 50 billion won; or
- A company that meets at least two of the following:
- The total amount of assets as of the end of the immediately preceding business year is less than 12 billion won;
- The total amount of liabilities as of the end of the immediately preceding business year is less than 7 billion won;
- Sales in the immediately preceding business year are less than 10 billion won; or
- The number of employees as of the end of the immediately preceding business year is less than 100.
Requirements to appoint other persons (officers, secretary, internal auditor / accountants). If so, what are their functions? Are there any residency requirements?
A company with more than KRW 1 billion (approximately USD 100,000) paid-in capital must have a full-time statutory auditor. A primary function of the statutory auditor is to monitor directors’ performance of duties. There is no residency requirement for statutory auditor.
What is the title designated for 'ownership interests' (e.g. shares, quota, interests, membership)?
Shares (“주식”; “Chusik”)
Are different classes of ownership interests possible? If so, what are some examples of different classes?
A Chusik Hoesa may issue different classes of shares as to the distribution of profit by dividends, the distribution of the surplus assets, the exercise of voting rights at a general meeting of shareholders, repayment, conversion, etc. The types and the number of such classes of shares to be issued shall be specified in the Articles of Incorporation.
What documentation is required for the transfer of ownership interests?
Shares certificates representing the ownership of shares must be delivered to the transferee. If the Articles of Incorporation require the approval of the Board of Directors in a share transfer, such approval will be needed. However, no deed of transfer is required for a transfer of ownership.
Are there any additional formal requirements required for the transfer of ownership (notary, approvals, stamping, filings, corporate records)?
The transfer must be recorded in the shareholders’ registry of the Chusik Hoesa for the transferee to assert the effect of transfer of shares against the Chusik Hoesa.
Are there any applicable stamp duties imposed when transferring ownership interests?
No. However, the securities transaction tax (generally, 0.5% of the purchase price for non-listed companies) and capital gains tax (if gains are realized) will be imposed.
How are shares issued? (including information on payment obligations, registration requirements)
Subject to the KCC and the Articles of Incorporation, a share issue must be adopted by the Board of Directors and recorded in the shareholders’ registry. The issue is effectuated on the next calendar day after the payment of share price is made in full.
Further information on equity contributions, e.g., non-cash payments on shares, (share premium) contributions without issuances of shares, can partially paid shares/ownership interests be permitted and what are the restrictions on them?
Non-cash payment on shares is possible. The Board of Directors may authorize shares to be issued for in-kind contribution consisting of any tangible, intangible property or benefit to the corporation, including contractual rights or securities of other corporation. When an in-kind contribution is used for to the subscription of the shares, such requires an appraisal by a certified appraiser of the value of such contribution and approval of the appraisal result by the relevant court.
Share premium contribution is not possible under Korean law.
Any requirements with respect to share cancellation, share repurchase and other capital reductions
Share cancellation is only possible by way of capital reduction under the KCC. To retire shares, it must be resolved by a special resolution of shareholders (i.e., approval by 2/3 of the voting shares represented at the meeting and 1/3 of all outstanding voting shares), and protection measures for the creditors must also be taken.
Share repurchase (i.e., treasury share) is stringently regulated under the KCC. Shares can be repurchased only with profit available for dividends, with an ordinary shareholder resolution approving such repurchase. But once acquired, cancellation of treasury shares only requires a resolution of the Board of Directors.
Any requirements with respect to distributions to shareholders?
Subject to a shareholder resolution, the company may pay dividends; provided, however, that the company may pay dividends limited to profit available for dividends, which will be calculated as stipulated by KCC
Can the owners or shareholders adopt a restrictive or governing agreement among themselves such as a Shareholders Agreement?
Yes, but the provisions in such agreement may not contradict the laws or the Articles of Incorporation.
Which are the typical annual maintenance costs of maintaining the existence and legal good standing of such an entity (excluding legal fees)?
There are no annual filing fees to maintain the existence and legal good standing. Generally, to maintain the existence and legal good standing of a Chusik Hoesa, it must, among other things:
- Maintain its business address and have directors;
- Hold an annual general meeting shareholders each year and keep the meeting minutes thereof;
- Prepare a business report and financial statements each year and have it approved at the shareholders’ meeting; and
- Make its applicable tax filings.
What are the general corporate tax rates? (Specify if there is a national versus local distinction).
Depending on the tax base amount, general corporate tax rates are as follows:
- Tax base of KRW 200 million (approximately USD 200,000) or less: 10%
- Tax base exceeding KRW 200 million but not more than KRW 20 billion (approximately USD 20 million): KRW 20 million + (Tax base exceeding KRW 20 million): 20%
- Tax base exceeding KRW 20 billion but not more than KRW 300 billion (approximately USD 300 million): KRW 3.98 billion + (Tax base exceeding KRW 20 billion): 22%
- Tax base exceeding KRW 300 billion: KRW 65.58 billion + (Tax base exceeding KRW 300 billion): 25%
Tax base, as a general proposition, means the amount of total taxable income less total taxable expense attributable to the pertinent business year and carry-forward tax loss. “Taxable income” and “taxable expense” are not equivalent to the financial term “revenue/income” or “expense,” and items qualifying as “taxable income” and/or “taxable expense” are specified in the applicable corporate tax related laws.
Summary of any specific matters, e.g. recent or prospective major legal developments
On December 29, 2020, an amended Korean Commercial Code (Amended KCC) was enacted with a main focus on expanding the rights of minority shareholders.
[Double Derivative Claims]
Under the Amended KCC, the following shareholders of a company have the right to request that a subsidiary of the company bring claims against directors of such subsidiary, and if the subsidiary does not file such a claim within 30 days of receipt of such request, such shareholders have a right to directly file a derivative suit on behalf of the subsidiary:
- Shareholder with at least 1% of the total number of issued shares in an unlisted company; or
- Shareholder with at least 0.5% of the total number of issued shares in a listed company for the previous six (6) consecutive months.
[Separate Election of a Director Concurrently Serving as an Audit Committee Member]
Under the Amended KCC, each listed company with total assets of KRW 2 trillion or more is now required, separately from the other directors of its board, to elect at least one director who will concurrently serve as an audit committee member.
Prior to the Amended KCC, when voting to elect audit committee members, shareholders holding more than 3% of the shares of such listed companies were restricted from voting when appointing an audit committee member (the 3% Rule). Since the 3% Rule did not apply to the election of directors, controlling shareholders were seen to have absolute control, notwithstanding their inability to vote on the appointment of an audit committee member. However, now that at least one director must be appointed concurrently as an audit committee member to which the 3% Rule applies, the ‘absolute control’ of controlling shareholders has been reduced by one director.