In case of Korea, the current laws do not clearly require nonprofit organizations to possess a certain amount of basic asset, except saying that it should have sufficient basic asset to achieve purposed activity. Therefore, any nonprofit organizations, foundation or association, even with fragile financial ability, can get permission for registration only with permission of the relevant agency.
The required purposes or activities of nonprofit organizations are prescribed in the relevant law, such as support or payment of school expenses, scholarship or research funds, science and charity for contribution to social common interest. A nonprofit corporation should focus its activities on one or more of these five activities. When an incorporated nonprofit organizations wants to change purposes, it must obtain the permission of the relevant ministry by requesting approval for a change in their articles of incorporation. When any nonprofit corporation wants to manage for-profit activities, it should obtain the approval of the relevant ministry for every business under the condition that the business should be the support of public benefit activities. The law governing NPOs is very strict in that an incorporated nonprofit organization, a foundation or association, is limited to the declared activities and revenues earned from profit-seeking activities should be for advancement of declared objectives. Of course, even when they may pursue profitable activities, the ultimate goal of such activities must be the advancement of the declared activities.
It also strictly regulates the use of annual budget, requiring that half of annual budget should be spent on direct service including grant-making and service delivery. The law also requires that any change in the basic assets should get permission from the relevant ministry to protect nonprofit corporation from any financial risk and to make it pursue intended nonprofit activities. To encourage activities of NPOs, they should be more easily formed or incorporated for the public good of the whole society preferably under the general law governing formation of NPOs and their activities not limited to those stipulated by the law. At the same time, to prevent misuse of NPOs, it is also needed that the law should encourage NPOs improve transparency problem and financial aspects, requiring that NPOs make public documents related to process of nonprofit activities, list of assets, balance sheet, and financial status.
3. Tax and other fund-raising policy for NPOs
For NPOs to pursue their intended purpose, they can afford to finance nonprofit activities. There are several channels through which the government can provide financial support NPOs or help them be financially self-supported; (i) preferential tax treatment to NPOs and of contributions to them. (ii) solicitation of contribution from the general public, (iii) direct subsidy. Among them, preferential tax treatment of NPOs and their contributors is the most widely and commonly used policy instrument in supporting NPOs across countries. What obligations are NPOs required to do in exchange for tax benefits? For others, it is the issue whether direct government's subsidy to NPOs is desirable, considering possibility of financial dependence of NPOs on government in the longer term. Related to other fund-raising, the issue is whether restrictions on solicitation of contribution from the general public can be justified from the social welfare perspective.
