Two most common types of a corporation are Joint Stock Company (“chusik hoesa” in Korean; JSC) and Limited Liability Company (“yuhan hoesa” in Korean; LLC). Set forth below is general information on the difference between JSC and LLC.
(i) Joint Stock Company
A JSC is the most commonly used corporate vehicle, and offers shareholders’ limited liability generally freely transferrable shares. Because a JSC can raise capital by offering shares of stock or debt securities in public capital markets, it has its advantages for large or expanding companies requiring large amounts of fixed capital and continued procurement of funds.
On the other hand, the main drawback of a JSC is that there are a plethora of standards required by law on how it should govern itself. Under Korean laws, there is an inspection requirement for a JSC at the formative stage, and a JSC must have an internal auditor. In addition (subject to a size threshold), there is a number of regulations on corporate formalities, including external audit requirements (see The Act on External Audit of Stock Companies, the “External Audit Act”) and public disclosure requirements.
(ii) Limited Liability Company
As for a LLC, the apparent disadvantage is the limited sources of capital, as the equity and debt securities are not traded to the public. Of course, the flip side of the coin is the much more relaxed regulations compared to a publicly traded JSC (therefore allowing a flexible governance). To name a few, an LLC (i) requires only one director, and is exempt from the internal auditor requirement, (ii) has no “one share, one vote” requirement, and (iii) has no external audit and public disclosure requirements.
All in all, an LLC is more appropriate for the operation of a small or medium-sized businesses owned by a small number of persons, not requiring large amounts of fixed capital.