FILING OBLIGATIONS FOR ACQUIRING SHARES IN KOREA: the residency status

by Andrew Baek

December 3, 2024

Following the previous article on the basic principles applicable to filing obligations, this article will delve further into the residency issue, a topic often of great interest to foreign investors.

Individuals with foreign nationality often ask our law office whether there are any regulatory restrictions or implicit hurdles preventing them from establishing, managing, or acquiring shares in a Korean company, due to their non-Korean nationality or non-residency status in Korea. The answer would be “generally no, with only marginal exceptions”.

As a general principle, the Foreign Investment Promotion Act (the “Act”) provides that foreigners may engage in various forms of Foreign Investment in Korea without restriction, except where explicitly stated otherwise in the law. However, these legal exceptions are narrowly defined. For instance, the Act prohibits Foreign Investment in a limited range of businesses related to national security.

Additional requirements may apply when establishing a financial company or becoming the largest or a major shareholder of such a company. However, these requirements apply to both foreign and domestic investors.

Of course, the trade relationship between the foreign investor’s country and Korea is also a relevant consideration.

Overall, while exceptions may exist, it can generally be stated that foreign investors face no significant restrictions or undue hurdles solely based on their nationality or residency status when establishing or acquiring shares in a Korean company. They only have to file the proper declaration or report to the authorities in accordance with the terms of their investment unless exempt from filing.

The same applies to the management of a Korean company by a foreign investor. However, there are a few specific issues that merit separate consideration.

The definition of Foreign Investment under the Act encompasses various activities, including establishing a legal entity, acquiring 10% or more of its equity interest with voting rights, or acquiring any equity interest accompanied by the appointment or dispatch of executive officers to the legal entity, provided that the investment amount exceeds KRW 100 million.

The above definition is designed to assess whether the foreign investor intends to participate in the management of the target company. Accordingly, the Act is structured to accommodate and encourage such participation, allowing the foreign investor to become an executive officer of the company.

Here, it is important to distinguish between an executive officer and an ordinary officer. For clarity, a foreign investor can assume either or both roles.

Under the Commercial Act, in a stock company, an executive officer refers to a director or an auditor. Directors are not employees but registered delegates with the authority to manage the company. They cannot be fired directly by the company; their removal requires a resolution of the shareholders’ meeting. Among the directors, a representative director is appointed to represent the company and has the authority to conduct all judicial and extra-judicial acts relating to the company’s business.

On the other hand, an ordinary officer is not a legally defined term but typically refers to positions such as CEO, CFO, general manager, or other executive employee positions. These officers manage the company’s daily business pursuant to the terms of their employment contract and can be fired directly by the company. While the roles of executive officers and representative directors are provided under the Commercial Act, roles like CEO, CFO, or general manager are not legally mandated. A representative director may also assume the role of a CEO and manage the company’s daily operations without appointing a separate individual for the position.

A foreign investor may be registered as a director or an auditor and may even be appointed as the representative director. These positions do not require the investor to obtain certain nationality or residency status. Furthermore, there is no legal requirement for a certain proportion of executive officers to be Korean nationals; they can be entirely foreign. Directors, including the representative director, can primarily perform their duties overseas and visit Korea only as necessary (e.g., for board meetings or signing contracts),

A foreign investor may also be employed as an ordinary officer of the company. In this case, nationality still remains an immaterial factor. However, such domestic employment typically requires the individual to reside in Korea to fulfill his or her duties. For practical reasons, the foreign investor may need to obtain a long-term visa that permits employment while residing in Korea.

As a result, executive officers may be able to fulfill their duties with a C-3 short-term visa or no-visa entry privileges, while ordinary officers may require a long-term visa or permanent residency in Korea. If the target company is registered as a Foreign-Invested Enterprise, foreign nationals who qualify as essential experts may apply for a D-8 visa, which allows them to reside in Korea while working at the company for up to five years per issuance. However, eligibility is determined at the discretion of the Korea Immigration Service, and approval is not guaranteed. Factors such as advanced degrees, relevant intellectual property, or other professional qualifications can enhance an applicant's chances, but the final decision involves a broad assessment by the Immigration Service in consultation with the Ministry of Trade, Industry, and Energy.

If you are considering business ventures involving these matters and require legal advice, feel free to contact us via email at inpyeong@inpyeonglaw.com or by phone at +82 2038 2339.

Ends.