The 2011 Revised Commercial Law of Korea introduced Habja-johab (hereinafter "K-Lp") and Yuhanchaekim-hoesa (hereinafter "K-LLC") as new forms of business organizations. Both entities were originally modelled after the US equivalents, i.e. the limited partnership and the limited liability company, respectively. There had been continuing criticisms from relevant industries and academia pointing out that the then existing forms of business organizations were not suitable for the newly-fledged areas of businesses such as the IT industry, venture business and private equity fund. For instance, Jooshik-hoesa, the Korean version of stock company and the most widely used form of business entity in Korea, assumes in principle large number of investors (or shareholders). and strict severance between the management body and the investors, which leaves little room for self-autonomy and flexibility and. shows shortcomings as a business form to be used in the "new industry".
Three main features have been requested for the new business entity to come. Firstly, more self-autonomy needs to be granted so that its members may have contractual discretion in formulating internal organs, proceeding with management and distributing the profits and losses among them. Secondly, its members should only take limited liability against corporate creditors. Thirdly, the partnership taxation treatment should be applicable to allow (i) exemption from the double-taxation and (ii) direct attribution of the profits and losses incurred at the corporate level to its members for tax purposes. The business entities fully or partially satisfying above mentioned features are discovered in the countries with advanced legal systems for the corporate law and such entities are widely used for small and medium sized enterprises in the "new industry" of those countries. Some examples can be found with the limited partnership, the LLP and the LLC of the US, J-LLC and J-LLP of Japan, the Limited Company of the UK, GmbH of Germany and SARL of France. The need of having equivalents of such in Korea was reasonable and understandable.
However, K-LP and K-LLC, as enacted by the Revised Commercial Law, lack certain main features and thus require amendments to properly serve the purpose of their introduction and to enhance their usefulness. With respect to K-LP, the Revised Commercial Law, among others, does not provide K-LP with any legal status separate from its members, i.e. K-LP is merely viewed as an aggregate of its members. Without any ability to be a party to a contract, become a titleholder or have standing in litigation, K-LP is unlikely to be adopted and utilized as a business organization in the market. Therefore, relevant provisions need to be created empowering K-LP to have such legal standing as a separate entity distinguished from its members. The prohibition on making the capital investments in the form of credit or labor also needs to be lifted. For K-LP to be widely used in the area of "new industry" where parties having professional skills and knowhow need to be granted with preferred treatment, capital investments should be allowed to be made in various manners. It is also required that the statute provides for an express provision on the limited partners' execution of the management works for the K-LP. As for K-LLC, rigid restriction for maintenance of the invested capital needs to be mitigated since the amount of invested capital for small or medium sized K-LLC will rarely work as a security in favor of its corporate creditors in a practical sense. The members of K-LLC should be also allowed to make capital investment in the form of labor or credit. The taxation regime is required to be amended so that both newly introduced business forms might be eligible for the partnership taxation. In addition to the said revisions and amendments to the Revised Commercial Law and the tax statute, there are some more tasks to be done for making K-LP and K-LLC serve its purpose in a more adequate and efficient manner.
Apart from the foregoing, it should be noted that introducing K-LP and K-LLC as new business organizations into the Korean legal system has presented such a dilemma from a long term viewpoint. Since the existing Commercial Law of Korea had long been providing for Habja-hoesa and Yuhan-hoesa, which are very similar to K-LP and K-LLC, respectively, the Revised Commercial Law can not avoid the severe criticism of redundant legislation. Furthermore, the existing Habja-hoesa, as a corporate entity, is given a legal personality and therefore can freely act as a separate business party, and the recent revision of the tax statute has vested it partnership taxation eligibility, making Habja-hoesa a business form far superior to K-LP. As for Yuhan-hoesa and K-LLC, differences between two do not seem material. Attention should be paid to Japan's abolition of its existing similar business form in the process of adopting J-LLC, whereby no such debate as "redundant legislation" was made possible. The fact is that no other countries provide for in their legal system plural number of business entities similar to LP and LLC, respectively, since such legislation is likely to cause confusion and extra costs. Considering that K-LP and K-LLC have just been introduced in Korea, necessary revisionary measures need to be done for their proper use in the short term perspective. In the long run, however, Habja-hoesa and K-LP should be converged. By the same token, Yuhan-hoesa and K-LLC must be combined into one. Each form of the business entity so combined, with the slight touch of amendments for more self-autonomy and partnership taxation eligibility, will be a perfect tool for the small or medium sized business enterprises in the area of "new industry" of Korea.