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Subject #4. Limited Company (Yuhan Hoesa) - Navigating Korea's Business Terrain: A Guide to Entity Selection for Foreign Investors [Feb.2024]
🌏 Embrace Your Global Business Expansion: Understanding the Limited Company (Yuhan Hoesa) in South Korea

The Limited Company (LC or Yuhan Hoesa) is a prime choice for foreign investors, blending a simplified structure with operational flexibility, potential for closed ownership, and a reliability track record spanning decades. Ideal for those looking to establish or broaden their footprint in the South Korean market, the Yuhan Hoesa offers limited liability for its members along with a flexible management structure.

Key Features of the Yuhan Hoesa:

🛡️ Limited Liability: Protection against personal liability for members, limiting their risk to their capital contribution.
💰 Flexible Capital Requirements: No minimum capital requirement for most businesses, with a KRW 100 million minimum for foreign-invested enterprises to achieve Foreign Invested Enterprise status.
🔄 Equity Transfer: Ability to restrict equity unit transfers, allowing for closed ownership tailored to the company's needs.
👥 Management Structure: Facilitated by a single director, with the option to appoint additional directors as needed.
📜 Legal Liability: Shareholder liability is confined to their share investment, protecting personal assets from corporate debts.
📊 Accounting Standards: Mandatory adherence to Korean GAAP/Korean IFRS, aligning with local tax laws.
💼 Taxation: Corporate earnings and dividends to shareholders are taxed, akin to a Joint Stock Company.

U.S. "Check-the-Box" Tax Regulation Advantage:

For U.S. investors, the Yuhan Hoesa’s compatibility with "check-the-box" regulations presents a strategic edge, allowing the entity to be treated as either a disregarded entity or a separate corporation for U.S. tax purposes. Opting for disregarded entity status can streamline U.S. tax reporting and potentially offer tax efficiencies for international operations.

📝 Steps to Establishing a Limited Company:

🏠 1. Business Address: A prerequisite for legal and operational setup.
📑 2. Application for FIE Status: Initiation at a foreign exchange bank in Korea.
💵 3. Capital Injection: Completion through the designated foreign exchange bank.
🏛️ 4. District Court Registry: Finalizing legal formalities.
📝 5. Tax Identification Number: Ensuring tax regulation compliance.
🎖️ 6. FIE Certificate: Achieving the final step in FIE registration.

Director Requirements: A single director suffices, with no mandatory statutory auditor.

Auditing and Compliance Adjustments:
The regulatory landscape for Yuhan Hoesa entities has evolved, impacting foreign investors (especially B2C) that previously favored this entity due to its exemption from mandatory external audits. As of fiscal years starting on or after November 1, 2019, a shift in regulations mandates external audits for Yuhan Hoesa entities meeting specific financial thresholds, marking a significant change in compliance requirements. This adjustment aims to enhance transparency and accountability within the corporate sector, especially for larger entities that play pivotal roles in the market.
  • Mandatory External Audits: Required for fiscal years commencing on or after November 1, 2019, if they meet particular financial benchmarks outlined below. #RegulatoryCompliance
  • Asset or Revenue Size: Entities with total assets or revenues surpassing KRW 50 billion are specifically subject to external audits, highlighting a focus on larger market players.
  • Comprehensive Financial Criteria: Additionally, audits are mandated for companies that do not satisfy at least three out of five specified criteria, designed to assess the financial scale and complexity of the entity. These criteria include total assets under KRW 12 billion, liabilities below KRW 7 billion, revenue less than KRW 10 billion, employing fewer than 100 individuals, and having less than 50 members.

Despite these regulatory updates, the Yuhan Hoesa continues to be a highly favored entity type among foreign investors in Korea, offering operational flexibility, tax efficiency, and member protection. Its eligibility for the U.S. "check-the-box" option further enhances its attractiveness, providing a versatile and efficient framework for entering or expanding in the Korean market.

Comprehensive Support for Establishment & Maintenance:
KEA is dedicated to guiding you through every step of establishing and maintaining your Limited Company in Korea, ensuring a seamless and efficient process.

🔜 Next in Our Series:
Stay tuned as we delve into the Limited Liability Company (Yuhan Chaekim Hoesa), uncovering the opportunities it presents in Korea's evolving business landscape.

For tailored insights or to discuss your business goals in Korea, feel free to reach out via email or leave a message on our website. We're here to provide personalized support and strategic guidance for your venture into the Korean market.

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