Various Forms of Corporations
In the Korean legal system, corporations are categorized into several forms based on their purpose of establishment, their constituent elements, and the scope of liability borne by their members.
Classification by Purpose
For-profit Corporation
- Objective: Primary goal is to generate profit through business activities and distribute those profits to members, such as shareholders.
- Examples: Joint-stock companies, Limited companies, and other commercial enterprises governed by the Commercial Act.
Non-profit Corporation
- Objective: Aimed at non-profit activities such as scholarship, religion, charity, arts, or social interaction. Profits cannot be distributed to members and must be used for the organization's designated purposes.
- Examples: Educational foundations, Medical corporations, Religious organizations, Scholarship foundations.
Classification by Components
Incorporated Association
- Core: Consists of a group of individuals combined for a specific purpose, where members are an essential element.
- Decision-making: The general meeting of members is the supreme decision-making body. The entity maintains its identity regardless of changes in membership.
Incorporated Foundation
- Core: Based on an aggregate of property dedicated to a specific purpose.
- Decision-making: The founder's intent, as established in the Articles of Incorporation, is paramount; there is no concept of a general meeting of members.
Five Types of Companies under the Commercial Act
This is the most critical classification for financial exams and professional practice, focusing on the limit of liability members assume for the company's debts.
| Type | Characteristics | Scope of Liability |
|---|---|---|
| Joint-stock Co. | Raises capital through shares; features separation of ownership and management | Limited Liability (Up to investment) |
| Limited Co. | Similar to a joint-stock company but allows for closed, smaller operations | Limited Liability |
| Limited Liability Co. | Internally structured like a partnership, externally operates as a company | Limited Liability |
| Partnership Co. | All members are personally responsible for the company's debts | Unlimited Liability |
| Limited Partnership Co. | A hybrid structure of both unlimited and limited liability partners | Mixed Liability |
Kim Finance's Insight
The primary factor in determining a corporate form is risk management. Forms with limited liability, such as joint-stock companies, provide a legal safeguard that protects personal assets beyond the invested capital in the event of business failure. Conversely, forms with unlimited liability, like partnership companies, rely on strong mutual trust among members but entail personal risk. Therefore, the choice of entity must be based on a thorough assessment of the business's nature and risk tolerance.