SOUTH KOREA Law and Practice Contributed by: Ho Joon Moon, Sung Min Kim, Allen Hyungi Ryu and Joon Sung Hong, Lee & Ko
• Obligation to hold virtual general meetings of shareholders (effective from 1 January 2027) – under the current KCC, the venue for a general meeting of shareholders has been interpreted as requiring a physical location. The amendment intro - duces specific provisions on electronic shareholder meetings, allowing listed companies to convene such meetings concurrently with in-person meet - ings held at the designated venue. For listed companies exceeding a certain size threshold, the concurrent holding of electronic shareholder meet - ings will become mandatory. • Adoption of independent directors (effective from 23 July 2026) – previously, both non-listed and listed companies could appoint outside directors if necessary. However, (i) in the case of listed com - panies with total assets less than KRW2 trillion, at least one quarter of the total number of directors had to be outside directors, and (ii) in the case of listed companies with total assets of KRW2 trillion or more, at least three outside directors had to be appointed and outside directors had to constitute the majority of the board of directors. The amend - ment introduces the concept of “independent directors” in place of outside directors for listed companies, and increases the minimum required proportion of independent directors to at least one third of the total number of directors (currently one quarter is the minimum requirement for listed companies with total assets of less than KRW2 tril - lion). An “independent director” refers to an outside director who performs their duties independently from inside directors, executive officers, and per - sons who give instructions regarding the execution of business. • Expansion of “3% rule” (effective from 23 July 2026) – previously, where the largest shareholder held more than 3% of the issued shares, any vot - ing rights in excess of 3% – including those held by related parties – could not be exercised in the appointment or dismissal of audit committee mem - bers who were not outside directors (the so-called “3% rule”). The amendment expands the applica - tion of this 3% rule by providing that, regardless of whether an audit committee member is an outside director, the aggregate voting rights of the largest shareholder and its related parties in excess of 3%
cannot be exercised in the appointment or removal of any audit committee member.
5. Negotiating the Terms 5.1 Preliminary Negotiation Instruments and Practices The following documents are used during the negoti - ating stage of a JV: • Due diligence questionnaire (DDQ) – although not as widely used in buyout transactions, DDQs are employed when due diligence is required in respect of any particular assets to be contributed by the JV partner and/or the JV partner itself; DDQs are typi - cally used in JV transactions where one partner is contributing assets, IP or know-how, and the other partner is contributing cash. • Term sheet – this is customarily used in the pre- negotiating stage of a JV. • Mutual non-disclosure agreement – this is cus - tomarily used in the pre-negotiating stage of a JV. It is often combined with the term sheet, where the term sheet sets out the parties’ confidentiality obligations. Where the JV parties are engaged in competing businesses, it is also a common prac - tice to implement a clean team arrangement. • Exclusivity agreement – this is customarily used in the pre-negotiating stage of a JV. It is often com - bined with the term sheet, where the term sheet sets out the exclusivity arrangement between the parties as a binding obligation. The term sheet is often the key document used during the negotiating stage of a JV. The term sheet typically sets out: • the key commercial terms; • exclusivity (if any) and/or confidentiality obligations; and • key corporate matters such as ownership, govern - ance/management, transfer restrictions, exit rights, etc. 5.2 Disclosure Obligations According to the KRX Disclosure Rule, when a KOSPI- listed company, as a participant in a JV, invests an
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