SOUTH KOREA Law and Practice Contributed by: Ho Joon Moon, Sung Min Kim, Allen Hyungi Ryu and Joon Sung Hong, Lee & Ko
7.2 Duties and Functions of JV Boards and Directors Under the KCC, a director of a company is considered to be an agent of the company with two primary cat - egories of duties: • the duties of a good faith caretaker towards the company (“duty of care”); and • the duty to act in good faith in the interests of the company in compliance with relevant laws and the company’s articles of incorporation (“duty of loyalty”). Specifically, the duty of care and duty of loyalty, col - lectively referred to as the “fiduciary duties”, also include following: • duty of confidentiality; • duty of non-competition; • duty against usurpation of corporate opportunities and assets; • duty against self-dealing; • duty to prepare financial statements, etc; and • duty to report (to the statutory auditor any fact that may have a material adverse effect on the com - pany). Furthermore, South Korean court precedents have adopted the “Business Judgement Rule”, where a director is deemed to have discharged their duty of care even if such decision results in loss or damage to the company, if: • the director has sufficiently, to the extent reasona - bly available, collected, investigated and examined the necessary and appropriate information; • the director reasonably believed that the decision was in the best interests of the company; • the director reached the decision in good faith fol - lowing due process; and • the decision itself or the decision-making process was not significantly unreasonable. 7.3 Conflicts of Interest Other than in specific industries (eg, the financial industry) where a dual role (as an officer of the parent/ subsidiary) is prohibited, a person is generally permit -
tral awards rendered in other contracting states in accordance with the Korean Arbitration Act. For arbi - tral awards rendered in jurisdictions not covered by the New York Convention, enforcement is still possible under South Korean law. In such cases, the general requirements for the recognition of foreign judgments under Article 217 of the Civil Procedure Act would apply, and the award must first be recognised by a South Korean court before it can be enforced through execution proceedings. The decision-making of a board of directors is, in principle, subject to the simple majority vote (ie, the majority of the directors attending the board of direc - tors’ meeting plus the majority of the attending direc - tors’ affirmative vote). Higher quorum/voting require - ments may be set out in the articles of incorporation and/or joint-venture agreement. Depending on the shareholding structure, a majority shareholder will often seek the right to designate the majority of the board of directors; whereas a minor - ity shareholder will often seek to ensure that the key decision-making is subject to higher quorum/voting requirements in the articles of incorporation (ie, veto right). 7. The JV Board 7.1 Board Structure Weighted voting is not recognised in South Korea. However, under the Act on Special Measures for the Promotion of Venture Businesses (Venture Business Act), in cases where the founder’s shareholding with voting rights falls below 30%, or where the founder ceases to be the largest shareholder, as a result of external capital raising exceeding a certain threshold, an unlisted venture company may issue dual-class shares granting up to ten voting rights per share to the founder. Directors may neither participate nor vote at a board of directors’ meeting by proxy. However, participation through an audio/video conference is allowed (unless prohibited by the articles of incorporation).
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