SOUTH KOREA Trends and Developments Contributed by: Joo-Young Kim, Hyun-Ju Ku and Dong-Wook Kim, Hannuri Law
Mandatory cumulative voting (Article 542-7) • Rationale: Since most companies exclude cumu- lative voting in their articles, the system has not taken root in practice. • Amendment: Large listed companies (≥ KRW2 trillion in assets) must adopt cumulative voting for director elections. • Expected impact: Minority shareholders’ influence over director elections should increase. In practice, however, electing a shareholder-nominated candi- date through cumulative voting will remain chal- lenging, as many companies already deploy tactics to reduce the number of seats open to cumulative voting. Expanded separate elections for audit committee members (Article 542-12) • Rationale: Under current law, large listed com- panies must have audit committees, and – while directors are generally elected first and audit-com- mittee members are then chosen from among them at the same meeting – at least one audit com- mittee member must be elected separately from other directors. To diversify board composition, the number of separately elected audit-committee members should increase. • Amendment: For large listed companies that are required to have audit committees, at least two audit committee members must be elected sepa- rately from other directors at the shareholders’ meeting. • Expected Impact: Audit committees are formed by three members in practice; thus, the prob- ability that independent members have a majority increases. December 2024: capital markets rule changes tightening treasury-share regulation On 31 December 2024, an amendment to the Enforce- ment Decree of the Financial Investment Services and Capital Markets Act (the “Enforcement Decree”) and the Regulation on the Issuance and Disclosure of Securities (the “Regulation”) took effect to address concerns that treasury shares were being used to entrench control.
No allotment of new shares to treasury shares in spin-offs and mergers (Enforcement Decree Articles 176-5 (7) and 176-6 (3), new) In practice, due to the absence of explicit statutory guidance or precedents, companies had historically allotted new shares to treasury shares in proportional spin-offs, enabling treasury holdings to enhance the controlling shareholder’s influence. The amended Decree now prohibits allotting new shares to treasury shares in spin-offs and mergers of listed companies. Enhanced disclosure on holding and disposing of treasury shares (Enforcement Decree Article 176-2 (6)) Listed companies whose treasury shares equal or exceed 5% of total outstanding shares must board- approve and disclose a “Treasury Share Report” set- ting out current holdings, purposes, and future plans. All listed companies must disclose, upon disposal of treasury shares, the purpose of the sale, the counter- party and the reasons for its selection, and expected dilution effects. Eliminating regulatory arbitrage via trusts for treasury-share transactions (Articles 5-2, 5-4, 5-10) If treasury shares are acquired or disposed of through a trust during the trust term, companies previously enjoyed a regulatory advantage over direct trans- actions. When acquiring via trust, companies must submit a statement of reasons if the actual buyback amount is less than originally disclosed and may not establish a new trust for one month after a buyback plan ends. If the trustee disposes of treasury shares during the trust term, the company must file a report on material facts – mirroring direct disposals – iden- tifying the counterparty and the reasons for its selec- tion. Expected Changes Following the Introduction of a Fiduciary Duty to Shareholders Among the July 2025 amendments, expressly recog- nising a director’s duty of loyalty to shareholders is expected to have far-reaching effects on both legal doctrine and practical activism. Academics and prac- titioners are actively debating several issues.
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