Types of corporations
Companies are categorized into five kinds, namely, unlimited partnership companies, limited partnership companies, stock companies, limited liability companies and limited companies.
Foreign investment and corporations
Relevance of corporation with foreign investment
- Among a number of different types of foreign investment under the 「Foreign Investment Promotion Act」, the foreign investment where a foreigner acquires the stocks or stakes of a Korean corporation (Article 2.(1).4.(a) of the 「Foreign Investment Promotion Act」) is a form of investment in a corporation by a foreigner in a Korean corporation.
Relevance of incorporation to foreign investment
- Article 2.(1).4.(a) of the 「Foreign Investment Promotion Act」 prescribes that foreign investment shall be recognized as foreign investment if a foreigner holds no less than 10% of the total stocks issued by or the total equity investment of a company whether by means of acquiring newly issued stocks or by acquiring the existing stocks thereof (Article 2.(2).1 of the 「Enforcement Decree of the Foreign Investment Promotion Act」). Therefore, a foreigner holding no less than 10% of the total stocks issued or total equity investment of a newly established company in Korea is deemed as a foreign investor under the 「Foreign Investment Promotion Act」.
Unlimited partnership company
Unlimited partnership company is composed of partners who have direct, joint and unlimited liability to creditors (Article 212 of the 「Commercial Act」).
The members of an unlimited partnership company are distinguished from the stockholders in a stock company and the members in a limited company in that they have unlimited, direct and joint liability to creditors of the company and are distinguished from the limited liability members in a limited partnership company in that they have unlimited liability.
Limited partnership company
In a limited partnership company, members include those who have a direct, joint and unlimited liability to creditors of the company as well as those whose liability is limited to the value of contribution made by the respective member. Thus, a stock company is a combined form of both limited and unlimited liability members (Article 268 of the 「Commercial Act」). While business is run by unlimited liability members, limited liability members provide capital and participate in the profit-sharing of the company (Article 273 of the 「Commercial Act」).
Limited partnership company is also a form of incorporated association but as stock company is run based on the trust among members, it is more of an association and a personal (as opposed to impersonal) corporation. A limited partnership company, in principle, can be in the same manner as an unlimited partnership company, with the only difference being the limitation of liability. Therefore, unless otherwise provided for under the 「Commercial Act」, the provisions for an unlimited partnership company shall be applied mutatis mutandis (Article 369 of the 「Commercial Act」) to a limited partnership company.
The liability of a shareholder in a stock company shall be limited to the subscription price which he has paid for his shares. The members of a stock company who are shareholders are only liable within the limit of the number of shares held and not liable for creditors (Article 331 of the 「Commercial Act」). Therefore, the fundamental features of a stock company are capital, stocks, and the limited liability of shareholders.
Limited liabilities company
A limited liability company occupies a middle position between a personal company and a material company. A limited liabilities company is, internally, a personal company. Its employees, however, do not bear direct liabilities for the company’s debts, which makes it similar to a material company externally. Employees are liable only insofar as their obligations of capital contribution hold.
In a limited company the members have limited liability to pay for their respective contribution and bears no liability to creditors of the company.
This form of company is similar to a stock company in that all members of the company have indirect and limited liability and the company has distinct functional organizations but is distinguished from a stock companies in many aspects in that regulations are relatively eased but the transfer of stakes is restricted. In this regard, limited company is a more closed form of company.