There are approximately 440,000 corporations in Korea. Among them, 420,000 corporations, 95% out of all corporations, are stock companies. Actually, under the Korean Commercial Code(“KCC”), enterprisers could choose any one of 4 types of corporation, which are Partnership Company, Limited Partnership Company, Stock Company, and Limited (Liability) Company. However, they just pick up the type of the stock company as their business types even though their businesses are very small sizes. Generally speaking the stock company is suitable for large size’s businesses instead of small size’s businesses because of the character of the stock company. One reason is for many enterprisers in Korea to choose almost one type out of 4 types that there were less types of corporation under the KCC. Therefore, the Korean government introduced the Limited Partnership and the Limited Liability Company through the most recent Amendment to the KCC which is in effective from April 15, 2012. The government is strongly expecting that small business corporations practically use well those two new business types since they have used mostly only one type of business since there had been lack of options for the small business corporations to select as their business entity.
However, there is a very serious problem of a double taxation on small business corporation when a enterpriser of small business corporation choose the stock company as his business type since possession and management of this small business stock company in Korea. Therefore, a corporation tax and a income tax as well must be paid by this small business stock company when a dividend is distributed to its stockholders. Generally said that it is not reasonable for a small business corporation to pay tax twice for only one income, so the tax law in Korea provides some adjustments to abate double taxes on a small business corporations. nevertheless the tax law provides the adjustment systems for abating double taxations, these systems do not apply to a small business stock company because the law provides that these systems effect to Partnership Company and Limited Partnership Company. In that, even though the Korean government introduce the US style LLC to KCC, there is a reasonable doubt whether the small business corporations in Korea practically use the new type of LLC, because the new type of LLC also does not meet the small business companies’ needs of abating double taxation in Korea. As a result, there should be something other than the new business types which are newly introduced to Korea for the small business stock company to get an adjustment of abating double taxation. In the United States, the Limited Partnership and the Limited Liability Company are very popular among the small business corporations. Moreover, the S Corporation is the most popular type of business among the small business corporation since S corporation, which is a type of a stock company, is applied to the abating system of a double taxation.
This Article substantially examines double taxation problems of small business corporations with some examples and analyzes some adjustment systems for abating a double taxation to small business stock companies. The Article also indicates that S Corporation is needed to introduce to Korean commercial or tax law system in order for the small business corporations to select itself as their business type of corporation.