Image Source : pixabay.com

A. Corporation vs. Unincorporated Association

A corporation, or juristic person, is defined as a body of ① specific people’s association or ② specific property having a personality as a subject of rights and duties equal to a natural person by the provisions of the Acts. That is, we may call a non-human body or organization a ‘juristic person’ after giving it legal personality. We can establish a corporation(juristic person) by enacting the Articles of incorporation of it and making registration of it at the seat of the principal office by the provisions of the Acts, unless otherwise specifically provided. (Articles 31, 33, and 34, The CIVIL ACT)

An association that is not a juristic person is called an ‘unincorporated association.’ An unincorporated association does not need to be under the provisions of the Acts, to enact the Articles of incorporation of it and making registration of it; instead, it cannot have legal personality. But it is given limited legal personality as a subject of rights and duties by some laws.

B. Incorporated Association vs. Incorporated Foundation

Of the corporation explained above, a body of ① specific people’s association is called ‘incorporated association,’ and that of ② specific property is called ‘incorporated foundation.’

C. Nonprofit Corporation

A corporation that aims for non-profit business is called a non-profit corporation. Establishing a non-profit corporation requires, in addition to the requirements described above, ‘permission of the competent authorities.’ (Article 32, The CIVIL ACT) To sum up, establishing an association or foundation as a corporation requires :

1. To establishment in accordant with the provisions of the Acts
2. To enact the articles of incorporation of it
3. To obtain permission for the establishment from the competent authorities and
4. To complete the registration of establishment

However, in the case of establishing a nonprofit organization as unincorporated, the requirements above are not applied.

D. Nonprofit Corporation under ‘Article 32 of the CIVIL ACT’ vs. Nonprofit Corporation under the ‘special laws’

It is called a general law when it has a wider range of effects on a certain matter than another one. The latter is called a special law.

It is the CIVIL ACT(Article 32) that has the widest effect on the establishment of non-profit corporations. Because the PRIVATE SCHOOL ACT, the MEDICAL SERVICE ACT, and the ACT ON THE ESTABLISHMENT AND OPERATION OF PUBLIC INTEREST CORPORATIONS (hereinafter the PUBLIC INTEREST CORPORATIONS ACT) respectively regulate more definite forms of non-profit corporations than the CIVIL ACT, they are all special laws on the CIVIL ACT on the matter of establishing non-profit corporations.

Therefore, the school juristic persons under the PRIVATE SCHOOL ACT(subparagraph 2 of Article 2), the social welfare foundations under the SOCIAL WELFARE SERVICES ACT(subparagraph 3 of Article 2), the medical corporations under the MEDICAL SERVICE ACT, and the public interest corporations under the PUBLIC INTEREST CORPORATIONS ACT(Article 2) are called the ‘nonprofit corporations under the special laws’, and the others ‘nonprofit corporations under Article 32 of the CIVIL ACT.’

E. Nonprofit, Non-governmental Organization (hereinafter NPNGO)

Non-profit organizations eligible for support under the provision of the ASSISTANCE FOR NON-PROFIT, NON-GOVERNMENTAL ORGANIZATIONS ACT(hereinafter NON-PROFIT ORGANIZATIONS ACT) are called NPNGOs. One might be easier to establish NPNGOs than Nonprofit corporations, because NPNGOs are just to be registered(Article 4(1)), not to be permitted by the competent authorities.

An incorporated or unincorporated organization will do for the NPNGO.

F. Legal Status of Nonprofit Organization under Various Tax Laws

Until now, we have looked at the laws and regulations that underlie the establishment of non-profit organizations, but there are legal concepts to be aware of regarding tax applicable to donations received by organizations.

Designation Organization Receiving Donations (under the CORPORATE TAX ACT)

For non-profit corporations to have their individual or corporate donors receive tax benefits such as the inclusion of donations in deductible expenses or tax credit for donations, they must be designated as the “designation organizations receiving donations(hereinafter DORD).” The scope and requirements of the DORD can be found in the Enforcement Decree of the Corporation Tax Act (Article 36(1)).

Private Organizations Eligible for Donations (under the INCOME TAX ACT)

For unincorporated NPNGOs to have their donors receive tax benefits such as the inclusion of donations in necessary expenses or tax credit for donations, they must be designated as the “private organizations eligible for donations(hereinafter POED).” The scope and requirements of the POED can be found in the Enforcement Decree of the INCOME TAX ACT(subparagraph 5 of Article 80(1)).

Public Interest Corporation(s), Etc. (under the INHERITANCE TAX AND GIFT TAX ACT)

The Inheritance Tax and Gift Tax Act stipulates that no inheritance tax or gift tax shall be imposed on property inherited or donated to the ‘public interest corporation(s), etc.’ (Article 16, Article 48). DORDs and POEDs are included in the ‘public interest corporations, etc.’(subparagraph 9 of Article 12, Enforcement Decree of the INHERITANCE TAX AND GIFT TAX ACT).

G. Conclusions

Combining the concepts described above into a diagram, it is shown below. Although most NPNGOs under the NON-PROFIT ORGANIZATIONS ACT are unincorporated, there are some corporations in NPNGOs, so you can see that they are drawn overlappingly.

Figure. Legal Types and Discipline Act for Non-profit Organizations

Source : Jahang, Lee and Jun(2018). 「A Comprehensive Analysis of Nonprofit Organizations in Korea(한국 비영리조직의 개괄적 현황 분석)」. The Beautiful Foundation. pp 10.

The number of non-profit organizations of each type identified in 2018 (excluding school juristic persons, social welfare foundations, and medical corporations) is as shown in the table below.

Table. Number of non-profit organizations by legal type

Source : Jahang, Lee and Jun(2018). 「A Comprehensive Analysis of Nonprofit Organizations in Korea(한국 비영리조직의 개괄적 현황 분석)」. The Beautiful Foundation. pp 10.
Note :
1. MOIS = Ministry of Interior and Safety(행정안전부)
2. MOEF = Ministry of Economy and Finance(기획재정부)

In the data above, the total number of nonprofit corporations and public corporations equals 23,821. This is more than 21,652 identified by the Beautiful Foundation (hereinafter BF) in 2018. In the case of NPNGOs, it is more than 12,887 by the BF. The reasons for the gaps might be due to the overlapped calculations by region or ministry.

Appendix. Key Korean Legal Terms on Nonprofit Organizations in Korean

Source: Korean Law Information Center(law.go.kr), Ministry of Government Legislation