SOUTH KOREA Trends and Developments Contributed by: Joo-Young Kim, Hyun-Ju Ku and Dong-Wook Kim, Hannuri Law
New “independent directors” terminology and higher minimum ratio (Article 542-8) • Rationale: To enhance the fairness and transpar- ency of listed-company boards through a stronger independent-director regime. • Amendment: “Outside directors” are now termed “independent directors.” For listed companies, the minimum ratio of independent directors rises from one-quarter to one-third. For large listed compa- nies (≥ KRW2 trillion in assets), the existing major- ity requirement remains. • Effective date: 23 July 2026 (one year after promul- gation). Stronger 3% Rule for appointing and removing audit committee members (Article 542-12) • Rationale: Limiting the largest shareholder’s voting rights to 3% when appointing or removing audit committee members previously varied depending on whether the candidate was an inside or outside director, a mismatch with the rule’s policy goals. • Amendment: The 3% rule on the largest share- holder now applies in the same way regardless of whether the candidate is an inside or outside/ independent director (aggregates the voting rights of the largest shareholder and its specially related persons). • Effective date: 23 July 2026. • Expected impact: Minority shareholders may find it easier to secure board representation. Once on the board, however, new directors may encounter legal issues around internal information-sharing protocols. August 2025: second wave of commercial act amendments On 25 August 2025, the National Assembly passed a second package focused on mandatory cumulative voting and expanded separate elections for audit- committee members. The effective date is one year after promulgation. The cumulative-voting special pro- vision applies beginning with the first general share- holders’ meeting of large listed companies convened after the effective date – meaning that many extraor- dinary meetings from September 2026 and most 2027 AGMs may result in markedly different board and audit-committee compositions.
2024–2025 Regulatory Changes July 2025: first wave of commercial act amendments
In July 2025, Korea enacted important Commercial Act amendments aimed at protecting shareholder rights. Most notably, the Act expressly recognises the duty of loyalty by directors owed to shareholders, a change that will materially affect both doctrine and day-to-day practice of shareholder rights and activism. Duty of loyalty by directors (Article 382-3, amended) • Rationale: Traditionally, the Commercial Act imposed on directors a duty of care as mandata- ries and a duty of loyalty to the company. Case law, however, was often read to deny a direct duty of loyalty to shareholders. This left perceived pro- tection gaps in cases where corporate harm was unclear or conflicts arose between controlling and minority shareholders. • Amendment: The Act now explicitly identifies directors’ duty of loyalty to shareholders, requiring directors to protect the interests of the shareholder body as a whole and to treat shareholders equita - bly when performing their duties. • Effective date: The provision took effect immedi- ately upon promulgation on 22 July 2025. Exercise of voting rights by electronic means (Article 368-4); hybrid meetings (Article 542-14, new) • Rationale: As virtual and hybrid meetings become a global standard, Korea sought to improve condi- tions for shareholder attendance and voting. • Amendment: Under Article 368-4, shareholders may exercise voting rights by electronic means; additionally, the new Article 542-14 authorises hybrid (parallel virtual and physical) meetings by board resolution, and for companies above a size to be defined by a presidential decree, hybrid • Expected impact: Staggered meeting dates should somewhat ease the chronic clustering of AGMs. Challenges remain in ensuring meaningful live interaction with management, and practitioners will need new methods to predict virtual votes. meetings will become mandatory. • Effective date: 1 January 2027.
235 CHAMBERS.COM
Powered by FlippingBook